a

GAO

United States General Accounting Office

Report to the Committees on the Budget

May 2004 OPPORTUNITIES 

FOR 

CONGRESSIONAL 

OVERSIGHT AND 

IMPROVED USE OF 

TAXPAYER FUNDS 

Budgetary 

Implications of 

Selected GAO Work 

GAO-04-649
Page i GAO-04-649 Opportunities for Oversight

Contents

Letter 1

Appendixes

Appendix I: Explanation of Conventions Used to Estimate Savings and 

Revenue Gains 4

Appendix II: Budget Options by Theme 5

Reassess Objectives 5

Redefine Beneficiaries 7

Improve Efficiency 8

Appendix III: Opportunities to Improve the Economy, Efficiency, and 

Effectiveness of Federal Programs 12

050 National Defense 12

Reduce the Number of Carrier Strike Group Expansions and 

Upgrades 13

Acquire Conventionally Rather Than Nuclear-Powered Aircraft 

Carriers 15

Reorganize C-130 Reserve Squadrons 18

Continue Defense Infrastructure Reform 20

Improve DOD Procurement Practices Regarding Canceling

Orders 25

Revising Occupancy Policies Could Reduce Barracks 

Requirements 27

Reduce Construction Cost of Military Barracks 29

Reduce the Corrosion of Military Assets 31

Limit Commitment to Production of the F/A-22 Fighter until 

Operational Testing Is Complete 34

Reassess Business Cases for Selected Weapon Systems Before 

Making Further Investments 36

Address Overpayments to Defense Contractors 41

Require DOD Report Its Progress in Implementing the Debt 

Collection Improvement Act of 1996 (DCIA) 44

Improve the Administration of Defense Health Care 46

Seek Additional Opportunities for VA and DOD to Increase Joint 

Activities to Enhance Services to Beneficiaries and Reduce 

Costs 48

150 International Affairs 51

Eliminate U.S. Contributions to Administrative Costs in Rogue 

States 52

Streamline U.S. Overseas Presence 54
Contents

Page ii GAO-04-649 Opportunities for Oversight

Reduce International Broadcasting Overlap 58

Reduce or Eliminate Eximbank Subsidies 61

250 General Science, Space, and Technology 65

Continue Oversight of the International Space Station and Related 

Support Systems 66

270 Energy 69

Corporatize or Divest Selected Power Marketing 

Administrations 70

Recover Power Marketing Administrations’ Costs 74

Increase Nuclear Waste Disposal Fees 77

Recover Federal Investment in Successfully Commercialized 

Technologies 79

Improve the Department of Energy’s Management of Its Capital 

Asset Acquisition, Weapons Refurbishment, and Site Cleanup 

Projects 81

Reduce the Costs of the Rural Utilities Service’s Electricity Loan 

Program 84

300 Natural Resources and Environment 86

Terminate Land-Exchange Programs 87

Deny Additional Funding for Commercial Fisheries Buyback 

Programs 89

Revise the Mining Law of 1872 91

Reexamine Federal Policies for Subsidizing Water for Agriculture 

and Rural Uses 93

Reassess Federal Land Management Agencies’ Functions and 

Programs 96

350 Agriculture 99

Eliminate or Reduce the Agriculture Department’s Market Access 

Program 100

Consolidate Common Administrative Functions at the U.S. 

Department of Agriculture 103

Further Consolidate the U.S. Department of Agriculture’s County 

Offices 105

Eliminate the Public Law 480 Title I Food Aid Program 107

Reduce or Eliminate the Export Credit Guarantee Programs 111

370 Commerce and Housing Credit 115

Recapture Interest on Rural Housing Loans 116

Require Self-Financing of Mission Oversight by Fannie Mae and 

Freddie Mac 118

Reduce Federal Housing Administration’s Insurance Coverage 120
Contents

Page iii GAO-04-649 Opportunities for Oversight

Merging Department of Agriculture and Department of Housing and 

Urban Development Single-Family Insured Lending Programs and 

Multifamily Portfolio Management Programs 122

Consolidate Homeless Assistance Programs 124

Reorganize and Consolidate Small Business Administration’s 

Administrative Structure 126

Improve Reviews of Small Business Administration’s Preferred 

Lenders 128

Eliminate NIST’s Advanced Technology Program 130

400 Transportation 132

Make Further Appropriations on the Pulsed Fast Neutron Analysis 

Inspection System Dependent on Results of Operational 

Testing 133

Close, Consolidate, or Privatize Some Coast Guard Operating and 

Training Facilities 136

Convert Some Support Officer Positions to Civilian Status 138

Develop a Passenger Intercity Rail Policy to Meet National

Goals 140

Eliminate Cargo Preference Laws to Reduce Federal Transportation 

Costs 142

Increase Aircraft Registration Fees to Enable the Federal Aviation 

Administration to Recover Actual Costs 144

Improve the Coordination of Transportation Services for 

Transportation-Disadvantaged Populations 146

450 Community and Regional Development 149

Eliminate the Flood Insurance Subsidy on Properties That Suffer the 

Greatest Flood Loss 150

Eliminate Flood Insurance for Certain Repeatedly Flooded 

Properties 152

Reduce or Eliminate the Trade Adjustment Assistance Program for 

Firms and Industries 154

Improve Federal Foreclosure and Property Sales Processes 157

500 Education, Training, Employment, and Social 

Services 160

Improve Targeting of Title I Basic Grants 161

Change Borrower Interest Rate on Federal Consolidation Loans 

From Fixed to Variable 163

550 Health 166

Improve Fairness of Medicaid Matching Formula 167

Prevent States from Using Illusory Approaches to Shift Medicaid 

Program Costs to the Federal Government 169

Control Provider Enrollment Fraud in Medicaid 172
Contents

Page iv GAO-04-649 Opportunities for Oversight

Eliminate Federal Funding for SCHIP Covering Adults without 

Children 174

Charge Beneficiaries for Food Inspection Costs 176

Redirect Carcass-by-Carcass Inspection Resources in Meat and 

Poultry Plants 178

Create a Uniform Federal Mechanism for Food Safety 180

570 Medicare 183

Reassess Medicare Incentive Payments in Health Care Shortage 

Areas 184

Adjust Medicare Payment Rates to Reflect Changing Technology, 

Costs, and Market Prices 186

Increase Medicare Program Safeguard Funding 190

Modify the New Skilled Nursing Facility Payment Method to Ensure 

Appropriate Payments 193

Implement Risk-Sharing in Conjunction with Medicare Home Health 

Agency Prospective Payment System 196

Allow Provisions for Direct Laboratory Payment for Certain 

Medicare Pathology Services to Expire 198

Require Information on Enrollees from Private Health Insurers to 

Improve Identification of Medicare Beneficiaries with Other 

Health Coverage 200

600 Income Security 202

Revise Benefit Payments under the Federal Employees’ 

Compensation Act 203

Implement a Service Fee for Successful Non-Temporary Assistance 

for Needy Families Child Support Enforcement Collections 209

Improve Reporting of DOD Reserve Employee Payroll Data to State 

Unemployment Insurance Programs 211

Improve Social Security Benefit Payment Controls 214

Simplify Supplemental Security Income Recipient Living 

Arrangements 216

Sustain/Expand Range of SSI Program Integrity Activities 218

Better Congressional Oversight of PRWORA’s Fugitive Felon 

Provisions 220

Improve the Administrative Oversight of Food Assistance 

Programs 223

Share the Savings from Bond Refundings 227

Reduce Federal Funding Participation Rate for Automated Child 

Support Enforcement Systems 229

700 Veterans Benefits and Services 231

Discontinue Veterans’ Disability Compensation for Nonservice 

Connected Diseases 232
Contents

Page v GAO-04-649 Opportunities for Oversight

Revise VA’s Disability Ratings Schedule to Better Reflect Veterans’ 

Economic Losses 235

Reassess Unneeded Health Care Assets within the Department of 

Veterans Affairs 237

Reducing VA Inpatient Food and Laundry Service Costs 240

800 General Government; 900 Net Interest; 999 Multiple 242

Taking a Strategic Approach Could Improve Federal Agencies’ 

Acquisition of Supplies and Services 243

Improper Benefit Payments Could Be Avoided or More Quickly 

Detected if Data from Various Programs Were Shared 246

Prevent Delinquent Taxpayers from Benefiting from Federal Credit 

Programs 249

Increase Fee Revenue from Federal Reserve Operations 251

Eliminate the 1-Dollar Note 253

Better Target Infrastructure Investments to Meet Mission and 

Results-Oriented Goals 255

Identify and Dispose of Unneeded Real Property Assets Held 

by GSA 257

Target Funding Reductions in Formula Grant Programs 259

Adjust Federal Grant Matching Requirements 263

Consolidate Grants for First Responders to Improve Efficiency 266

Improve IRS’s Ability to Collect Delinquent Taxes 268

Receipts 270

Enhance Nontax Debt Collection Using Available Tools 271

Increase Highway User Fees on Heavy Trucks 274

Implement Tolling or Other Alternative Revenue Sources for the 

Fuel Tax on Highways 276

Restrict the Preferential Federal Income Tax Treatment of 

Business-Owned Life Insurance 278

Reassess Annual Charges for FERC-licensed Hydropower Projects 

that Use Federal Lands 281

Tax Interest Earned on Life Insurance Policies and Deferred 

Annuities 283

Further Limit the Deductibility of Home Equity Loan Interest 285

Limit the Individual Tax Exclusions for Employer-Paid Health 

Insurance 287

Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes 

on Motor Fuels 289

Index Excise Tax Rates for Inflation 291

Require Corporate Tax Document Matching 293

Improve Administration of the Tax Deduction for Real Estate

Taxes 294
Contents

Page vi GAO-04-649 Opportunities for Oversight

Increase Filing of Returns by U.S. Citizens Living Abroad 296

Increase the Use of Seizure Authority to Collect Delinquent

Taxes 298

Increase Collection of Self-employment Taxes 300

Increase the Use of Electronic Funds Transfer for Installment Tax 

Payments 302

Reduce Gasoline Excise Tax Evasion 304

Improve Independent Contractor Tax Compliance 306

Expand the Use of IRS’s TIN-Matching Program 308

Improve Administration of the Federal Payment Levy Program 310

Increase Penalties and Consistency of Disclosure for Abusive Tax 

Shelters 311

Authorize IRS to Use Private Collection Agencies to Collect Certain 

Delinquent Taxes 313

Tables Table 1: Reassess Objectives 6

Table 2: Redefine Beneficiaries 8

Table 3: Improve Efficiency 10

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Page 1 GAO-04-649 Opportunities for Oversight

United States General Accounting Office

Washington, D.C. 20548

Comptroller General A of the United States

May 7, 2004 Letr

The Honorable Don Nickles

Chairman

The Honorable Kent Conrad

Ranking Minority Member

Committee on the Budget

United States Senate

The Honorable Jim Nussle

Chairman

The Honorable John Spratt

Ranking Minority Member

Committee on the Budget

House of Representatives

This report contains in a single document the budgetary implications of 

selected program reforms discussed in past GAO work but not yet 

implemented or enacted. Since 1994, we have prepared annual reports 

similar to this product, in order to continue to assist congressional 

committees in identifying approaches to reduce federal spending or 

increase revenues. This year’s report contains over 100 examples of budget 

options organized by budget function. Where possible, budgetary savings 

estimates provided by the Congressional Budget Office (CBO) or the Joint 

Committee on Taxation (JCT) are presented. The conventions used by CBO 

and JCT to estimate budgetary savings are described in appendix I.

Following the events of September 11, 2001 and the return of unified 

budget deficits in fiscal year 2002, the Congress and the administration face 

both immediate and long-term challenges. In the near term, Congress and 

the administration are faced with the challenge of combating terrorism and 

ensuring the security of our homeland. In the long term, the nation faces 

immense fiscal and economic pressures created by known demographic 

trends and rising health care costs. Both new commitments undertaken 

after September 11 and longer-term pressures sharpen the need to look at 

competing claims and new priorities. As we have noted in a recent 

testimony,1

 there is a need to begin reexamining the base of government 

1

 U.S. General Accounting Office, Results-Oriented Government: Shaping the Government 

to Meet 21st Century Challenges, GAO-03-1168T (Washington, D.C.: Sept. 17, 2003).
Page 2 GAO-04-649 Opportunities for Oversight

programs, policies, and operations to make government more effective and 

relevant to a changing society.

In this report, we highlight opportunities for, and specific examples of, 

legislative and administrative change that might yield budgetary savings. 

These budget options are based on past GAO work. While this report is not 

intended to represent a complete summary of all possible options, it does 

provide specific examples that demonstrate the programmatic and fiscal 

oversight needed as our nation’s priorities are reassessed in light of short 

and long-term challenges.

As consistent with our prior budgetary implications reports, we have 

organized the options presented in this report as falling in one of the 

following three areas: 

• Reassess objectives: Options for reconsidering whether to terminate 

or revise services and programs because goals have been achieved, have 

been persistently not met, or are no longer relevant due to changing 

conditions.

• Redefine beneficiaries: Options for revising formulas or eligibility 

rules or improving the targeting of benefits or fees.

• Improve efficiency: Options to address program execution problems 

through consolidation, reorganization, improving collections methods, 

or attacking high-risk activities.

The specific options described in each example are not intended to suggest 

the only way to address some of the significant problems identified in our 

reviews of federal programs and activities. Each example presents only one 

of many possible options available to the Congress, and including a specific 

option in this report does not mean that we endorse it or that the chosen 

option is the only or the most feasible approach.

Options in this report include a listing of relevant GAO reports and 

testimonies and a GAO contact. Although we derived the examples in this 

report from our existing body of work, there are similarities between the 

specific options presented in this report and other proposals. For example, 
Page 3 GAO-04-649 Opportunities for Oversight

some options contained in this report have also been included in CBO’s 

annual spending and revenue options publication.2

We are also sending copies of this report to other interested committees of 

the Congress. Copies will be made available to others upon request.

This report was prepared under the coordination of Paul L. Posner, 

Managing Director, and Susan J. Irving, Director, Federal Budget Analysis, 

Strategic Issues, who may be reached at (202) 512-9573 or (202) 512-9142, 

respectively. Specific questions about individual options may be directed to 

the GAO contact listed with each option.

David M. Walker

Comptroller General

of the United States

2

 Congressional Budget Office, Budget Options (Washington, D.C.: March 2003).
Page 4 GAO-04-649 Opportunities for Oversight

Appendix I

Explanation of Conventions Used to Estimate Apendxies

Savings and Revenue Gains ApendxiI

The Congressional Budget Office (CBO) and the Joint Committee on 

Taxation (JCT) provided cost estimates where possible for many of our 

options. As in our April 2002 report, a brief explanation is included with 

the option if specific estimates could not be provided.1

 Where estimates 

are provided, the following conventions were followed.2

• For revenue estimates, the increase in collections reflects what would 

occur, over and above amounts due under current law, if the option 

were enacted. Most of the estimates come from the JCT, although a few 

were produced by CBO.

• For direct spending programs, estimated savings show the difference 

between what the program would cost under the CBO baseline, which 

assumes continuation of current law, and what it would cost after the 

suggested modification.

• For discretionary spending programs the estimates show savings 

compared to the fiscal year 2004 funding level adjusted for inflation. 

Savings for most defense options are estimated relative to DOD’s 

planned program levels.

Subsequent savings and revenue estimates provided by CBO and JCT may 

not match exactly those contained in this report. Differences in details of 

specific proposals, changes in assumptions that underlie the analyses, and 

updated baselines can all lead to significant differences in estimates. 

Finally, some of the options could not be scored by CBO or JCT. Several of 

these involve management improvements that we believe can contribute to 

reduced spending or increased revenues but whose effects are too 

uncertain to be estimated. A few options are not estimated because they 

concern future choices about spending that are not currently in the 

baseline used to calculate annual spending and revenue. In other cases, 

savings are likely to come in years beyond the 10-year estimation period 

that CBO uses.

1

 The options were not scored in our August 2003 report. Instead, we reported whether or 

not the CBO estimate was included in the April 2002 report.

2

 For a complete discussion of the uses and caveats of the CBO estimates, see CBO’s report, 

Budget Options (March 2003).
Page 5 GAO-04-649 Opportunities for Oversight

Appendix II

Budget Options by Theme ApendxiI

As consistent with our previous past budgetary implications reports, this 

appendix groups our options in one of three broad themes: reassess 

objectives, redefine beneficiaries, and improve efficiency. These three 

themes are based on an implicit set of decision rules that encourage 

decision makers to think systematically, within an ever-changing 

environment, about

• what services the government provides or should continue to provide,

• for whom these services are or should be provided, and

• how services are or should be provided.

Reassess Objectives The first theme focuses on the objectives of federal programs or services. 

These options (see table 1) offer opportunities to periodically reconsider a 

program’s original purpose, the conditions under which it continues to 

operate, and whether its cost effectiveness is appropriate. Our work 

suggests three decision rules that illustrate this strategy.

Programs can be considered for termination if they have succeeded in 

accomplishing their intended objectives or if it is determined that the 

programs have persistently failed to accomplish their objectives.

Programs can be considered for termination or revision when underlying 

conditions change so that the original objectives may no longer be valid.

Programs can be reexamined when cost estimates increase significantly 

above those associated with original objectives, when benefits fall 

substantially below original expectations, or both.

For example, aircraft carrier strike groups are the centerpiece of the Navy’s 

surface force and significantly influence the size, composition, and cost of 

the fleet. Our analysis indicates that there are opportunities to use less 

costly options to satisfy many of the carrier groups’ traditional roles 

without unreasonably increasing the risk that U.S. national security would 

be threatened. For example, one less costly option would be to rely more 

on battle groups centered around increasingly capable amphibious assault 

ships, surface combatants and Trident Nuclear-Powered Guided Missile 

Submarines for overseas presence and crisis response.
Appendix II

Budget Options by Theme

Page 6 GAO-04-649 Opportunities for Oversight

Table 1: Reassess Objectives

Source: GAO analysis.

Budget 

function Option

050 Reduce the Number of Carrier Strike Group Expansions and Upgrades

050 Limit Commitment to Production of the F/A-22 Fighter until Operational Testing Is Complete

050 Reassess Business Cases for Selected Weapon Systems Before Making Further Investments

150 Eliminate U.S. Contributions to Administrative Costs in Rogue States

150 Reduce International Broadcasting Overlap

250 Continue Oversight of the International Space Station and Related Support Systems

270 Corporatize or Divest Selected Power Marketing Administrations

300 Terminate Land-Exchange Programs

300 Deny Additional Funding for Commercial Fisheries Buyback Programs

350 Eliminate or Reduce the Agriculture Department’s Market Access Program

350 Eliminate Public Law 480 Title I Food Aid Program

350 Reduce or Eliminate the Export Credit Guarantee Program

370 Eliminate NIST’s Advanced Technology Program

400 Make Further Appropriations on the Pulsed Fast Neutron Analysis Inspection System Dependent on Results of 

Operational Testing

400 Develop a Passenger Intercity Rail Policy to Meet National Goals

400 Eliminate Cargo Preference Laws to Reduce Federal Transportation Costs

450 Reduce or Eliminate the Trade Adjustment Assistance Program for Firms and Industries

550 Improve Fairness of Medicaid Matching Formula

570 Reassess Medicare Incentive Payments in Health Care Shortage Areas

600 Revise Benefit Payments under the Federal Employees’ Compensation Act

700 Revise VA’s Disability Ratings Schedule to Better Reflect Veterans’ Economic Losses

800+ Improve IRS’s Ability to Collect Delinquent Taxes

Receipt Implement Tolling or Other Alternative Revenue Sources for the Fuel Tax on Highways

Receipt Restrict the Preferential Federal Income Tax Treatment of Business-Owned Life Insurance

Receipt Reassess Annual Charges for FERC-licensed Hydropower Projects that Use Federal Lands

Receipt Tax Interest Earned on Life Insurance Policies and Deferred Annuities

Receipt Further Limit the Deductibility of Home Equity Loan Interest

Receipt Increase Penalties and Consistency of Disclosure for Abusive Tax Shelters

Receipt Authorize IRS to Use Private Collection Agencies to Collect Certain Delinquent Taxes
Appendix II

Budget Options by Theme

Page 7 GAO-04-649 Opportunities for Oversight

Redefine Beneficiaries The second theme focuses on the intended beneficiaries for federal 

programs or services (see table 2). The Congress originally defines the 

intended audience for any program or service based on some perception of 

eligibility and/or need. To better reflect and target increasingly limited 

resources, these definitions can be periodically reviewed and revised. Our 

body of work suggests four decision rules that illustrate this strategy.

• Formulas for a variety of grant programs to state and local governments 

can be revised to better reflect the fiscal capacity of the recipient 

jurisdiction. This strategy could reduce overall funding demands while 

simultaneously redistributing available grant funds so that the most 

needy receive the same or increased levels of support.

• Eligibility rules can be revised, without altering the objectives of the 

program or service.

• Fees can be targeted to individuals, groups, or industries that directly 

benefit from federal programs. Also, existing charges can be increased 

so that the direct beneficiaries share a greater portion of a program’s 

cost.

• Tax preferences can be narrowed or eliminated by revising eligibility 

criteria or limiting the maximum amount of preference allowable.

For example, at a time when federal domestic discretionary resources are 

constrained, better targeting of grant formulas offers a strategy to bring 

down federal outlays by concentrating reductions on wealthier localities 

with fewer needs and greater capacity to absorb cuts. Federal grant 

formulas could be redesigned to lower federal costs by disproportionately 

reducing federal funds to states and localities with the strongest tax bases 

and fewer needs, as shown in our option on formula grants.
Appendix II

Budget Options by Theme

Page 8 GAO-04-649 Opportunities for Oversight

Table 2: Redefine Beneficiaries

Source: GAO analysis.

Improve Efficiency The third theme addresses how the program or service is delivered (see 

table 3). This strategy suggests that focusing on the approach or delivery 

Budget 

function Option

150 Reduce or Eliminate Eximbank Subsidies

270 Recover Power Marketing Administrations’ Costs

270 Increase Nuclear Waste Disposal Fees

270 Recover Federal Investment in Successfully Commercialized Technologies

300 Revise the Mining Law of 1872

300 Reexamine Federal Policies for Subsidizing Water for Agriculture and Rural Uses

370 Recapture Interest on Rural Housing Loans

370 Require Self-Financing of Mission Oversight by Fannie Mae and Freddie Mac

400 Increase Aircraft Registration Fees to Enable the Federal Aviation Administration to Recover Actual Costs

450 Eliminate the Flood Insurance Subsidy on Properties That Suffer the Greatest Flood Loss

450 Eliminate Flood Insurance for Certain Repeatedly Flooded Properties

500 Improve Targeting of Title I Basic Grants

550 Prevent States from Using Illusory Approaches to Shift Medicaid Program Costs to the Federal Government

550 Eliminate Federal Funding for SCHIP Covering Adults without Children

550 Charge Beneficiaries for Food Inspection Costs

550 Redirect Carcass-by-Carcass Inspection Resources in Meat and Poultry Plants

600 Implement a Service Fee for Successful Non-Temporary Assistance for Needy Families Child Support Enforcement 

Collections

600 Improve Reporting of DOD Reserve Employee Payroll Data to State Unemployment Insurance Programs

600 Better Congressional Oversight of PRWORA’s Fugitive Felon Provisions

600 Share the Savings from Bond Refundings

700 Discontinue Veterans’ Disability Compensation for Nonservice Connected Diseases

800+ Prevent Delinquent Taxpayers from Benefiting from Federal Credit Programs

800+ Target Funding Reductions in Formula Grant Programs

800+ Adjust Federal Grant Matching Requirements

Receipt Increase Highway User Fees on Heavy Trucks

Receipt Limit the Individual Tax Exclusions for Employer-Paid Health Insurance

Receipt Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on Motor Fuels

Receipt Index Excise Tax Rates for Inflation
Appendix II

Budget Options by Theme

Page 9 GAO-04-649 Opportunities for Oversight

method can significantly reduce spending or increase collections. Our body 

of work suggests the following decision rules that illustrate this strategy.

• Reorganizing and consolidating programs or activities with similar 

objectives and audiences can eliminate duplication and improve 

operational efficiency.

• Using reengineering, benchmarking, streamlining, and other process 

change techniques can reduce the cost of delivering services and 

programs.

• Using performance measurement and generally improving the accuracy 

of available program information can promote accountability and 

effectiveness and reduce errors.

• Attacking activities at risk of fraud, waste, abuse, and mismanagement.

• Improving collection methods and ensuring that all revenues and debts 

owed are collected can increase federal revenues.

• Establishing market-based prices can help the government recover the 

cost of providing services while encouraging the best use of the 

government’s resources.

As an illustration of this theme, in May 2000, GAO reported that the 

Department of Veterans Affairs (VA) and the Department of Defense (DOD) 

provide health care services to more than 12 million beneficiaries at a cost 

of about $34 billion annually; in 2003, the cost was nearly $50 billion 

annually. Over the past two decades, DOD and VA have entered into a 

sharing program that has yielded benefits in both dollar savings and 

qualitative gains, illustrating what can be achieved when the two agencies 

work together to identify where excess capacity and cost advantages exist. 

However, although VA and DOD continue to share resources to provide 

quality and cost-effective health care services, existing sharing agreements 

are not being taken full advantage of and additional sharing opportunities 

could be pursued. Long-standing barriers continue to present challenges 

for future collaboration and cost efficiencies, such as the current inability 

of VA and DOD to electronically share health data information in a two-way 

exchange. Given the changing health care environment, the criteria and 

conditions that make resource sharing a cost-effective option for the 

federal government need to be reviewed and strategies for sharing 
Appendix II

Budget Options by Theme

Page 10 GAO-04-649 Opportunities for Oversight

rethought. VA and DOD need to work together to determine an appropriate 

course of action to ensure that resource-sharing opportunities are realized.

Table 3: Improve Efficiency

Budget 

function Option

050 Acquire Conventionally Rather Than Nuclear-Powered Aircraft Carriers

050 Reorganize C-130 Reserve Squadrons

050 Continue Defense Infrastructure Reform

050 Improve DOD Procurement Practices Regarding Canceling Orders

050 Revising Occupancy Policies Could Reduce Barracks Requirements

050 Reduce Construction Cost of Military Barracks

050 Reduce the Corrosion of Military Assets

050 Address Overpayments to Defense Contractors

050 Require DOD Report Its Progress in Implementing the Debt Collection Improvement Act of 1996 (DCIA)

050 Improve the Administration of Defense Health Care

050 Seek Additional Opportunities for VA and DOD to Increase Joint Activities to Enhance Services to Beneficiaries and 

Reduce Costs

150 Streamline U.S. Overseas Presence

270 Improve the Department of Energy’s Management of Its Capital Asset Acquisition, Weapons Refurbishment, and Site 

Cleanup Projects

270 Reduce the Costs of the Rural Utilities Service’s Electricity Loan Program

300 Reassess Federal Land Management Agencies’ Functions and Programs

350 Consolidate Common Administrative Functions at the U.S. Department of Agriculture

350 Further Consolidate the U.S. Department of Agriculture’s County Offices

370 Reduce Federal Housing Administration’s Insurance Coverage

370 Merging Department of Agriculture and Department of Housing and Urban Development Single-Family Insured Lending 

Programs and Multifamily Portfolio Management Programs

370 Consolidate Homeless Assistance Programs

370 Reorganize and Consolidate Small Business Administration’s Administrative Structure

370 Improve Reviews of Small Business Administration’s Preferred Lenders

400 Close, Consolidate, or Privatize Some Coast Guard Operating and Training Facilities

400 Convert Some Support Officer Positions to Civilian Status

400 Improve the Coordination of Transportation Services for Transportation-Disadvantaged Populations

450 Improve Federal Foreclosure and Property Sales Processes

500 Change Borrower Interest Rate on Federal Consolidation Loans From Fixed to Variable

550 Control Provider Enrollment Fraud in Medicaid

550 Create a Uniform Federal Mechanism for Food Safety
Appendix II

Budget Options by Theme

Page 11 GAO-04-649 Opportunities for Oversight

Source: GAO analysis.

570 Adjust Medicare Payment Rates to Reflect Changing Technology, Costs, and Market Prices

570 Increase Medicare Program Safeguard Funding

570 Modify the New Skilled Nursing Facility Payment Method to Ensure Appropriate Payments

570 Implement Risk-Sharing in Conjunction with Medicare Home Health Agency Prospective Payment System

570 Allow Provisions for Direct Laboratory Payment for Certain Medicare Pathology Services to Expire

570 Require Information on Enrollees from Private Health Insurers to Improve Identification of Medicare Beneficiaries with 

Other Health Coverage

600 Improve Social Security Benefit Payment Controls

600 Simplify Supplemental Security Income Recipient Living Arrangements

600 Sustain/Expand Range of SSI Program Integrity Activities

600 Improve the Administrative Oversight of Food Assistance Programs

600 Reduce Federal Funding Participation Rate for Automated Child Support Enforcement Systems

700 Reassess Unneeded Health Care Assets within the Department of Veterans Affairs

700 Reducing VA Inpatient Food and Laundry Service Costs

800+ Taking a Strategic Approach Could Improve Federal Agencies’ Acquisition of Supplies and Services

800+ Improper Benefit Payments Could Be Avoided or More Quickly Detected if Data from Various Programs Were Shared

800+ Increase Fee Revenue from Federal Reserve Operations

800+ Eliminate the 1-Dollar Note

800+ Better Target Infrastructure Investments to Meet Mission and Results-Oriented Goals

800+ Identify and Dispose of Unneeded Real Property Assets Held by GSA

800+ Consolidate Grants for First Responders to Improve Efficiency

Receipt Enhance Nontax Debt Collection Using Available Tools

Receipt Require Corporate Tax Document Matching

Receipt Improve Administration of the Tax Deduction for Real Estate Taxes

Receipt Increase Filing of Returns by U.S. Citizens Living Abroad

Receipt Increase the Use of Seizure Authority to Collect Delinquent Taxes

Receipt Increase Collection of Self-employment Taxes

Receipt Increase the Use of Electronic Funds Transfer for Installment Tax Payments

Receipt Reduce Gasoline Excise Tax Evasion

Receipt Improve Independent Contractor Tax Compliance

Receipt Expand the Use of IRS’s TIN-Matching Program

Receipt Improve Administration of the Federal Payment Levy Program

(Continued From Previous Page)

Budget 

function Option
Page 12 GAO-04-649 Opportunities for Oversight

Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs ApendxiI

050 National Defense Reduce the Number of Carrier Strike Group Expansions and Upgrades

Acquire Conventionally Rather Than Nuclear-Powered Aircraft Carriers

Reorganize C-130 Reserve Squadrons

Continue Defense Infrastructure Reform

Improve DOD Procurement Practices Regarding Canceling Orders

Revising Occupancy Policies Could Reduce Barracks Requirements

Reduce Construction Cost of Military Barracks

Reduce the Corrosion of Military Assets

Limit Commitment to Production of the F/A-22 Fighter until Operational 

Testing Is Complete

Reassess Business Cases for Selected Weapon Systems Before Making 

Further Investments

Address Overpayments to Defense Contractors

Require DOD Report Its Progress in Implementing the Debt Collection 

Improvement Act of 1996 (DCIA)

Improve the Administration of Defense Health Care

Seek Additional Opportunities for VA and DOD to Increase Joint Activities 

to Enhance Services to Beneficiaries and Reduce Costs
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 13 GAO-04-649 Opportunities for Oversight

Reduce the Number of 

Carrier Strike Group 

Expansions and 

Upgrades

Aircraft carrier strike groups are the centerpiece of the Navy’s surface 

force and significantly influence the size, composition, and cost of the fleet. 

The annualized cost to acquire, operate, and support a single Navy carrier 

strike group is about $2.2 billion (in fiscal year 2004 dollars) and is likely to 

increase as older units are replaced and modernized. The strike group 

includes the carrier and its air wing, and the cruisers, destroyers and other 

ships that accompany the carrier during its deployment, as well as the costs 

to support the carrier strike group. The Navy has several costly ongoing 

carrier-related programs: one nuclear-powered Nimitz-class carrier is under 

construction ($5.2 billion); a research and development program ($3.6 

billion) for a new nuclear-powered carrier design is underway; production 

($8.7 billion) of that new carrier is set to begin in 2007; and the second ship 

of the 10-ship Nimitz-class began its 3-year refueling complex overhaul in 

2001 ($2.5 billion) and the third ship is scheduled to begin in 2006. AEGIS 

destroyers are being procured and the next generation of surface 

combatants is being designed; and carrier-based aircraft are expected to be 

replaced/upgraded by a new generation of strike fighters and mission 

support aircraft throughout the next decade.

Our analysis indicates that there are opportunities to use less costly 

options to satisfy many of the carrier groups’ traditional roles without 

unreasonably increasing the risk that U.S. national security would be 

threatened. For example, one less costly option would be to rely more on 

strike groups centered around increasingly capable amphibious assault 

ships, surface combatants and Trident SSGNs for overseas presence and 

crisis response. 

CBO estimates that savings could total $3.7 billion over the 2005-2009 

period from retiring one aircraft carrier (CVN-70), and one carrier air wing. 

This estimate includes savings from foregoing the overhaul ($2.4 billion) 

and savings from not operating the carrier ($1.3 billion). 

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Theme Reassess objectives
Appendix III

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Page 14 GAO-04-649 Opportunities for Oversight

Five-Year Savings

Source: Congressional Budget Office.

Note: The Navy’s plans call for production of a replacement carrier (CVN-21) in 2007 and a refueling 

complex overhaul of an existing carrier (CVN-70) in 2006. This option would continue the production 

of the CVN-21 carrier but would retire the CVN-70 in 2005.

Related GAO Products Force Structure: Options for Enhancing the Navy’s Attack Submarine 

Force. GAO-02-97. Washington, D.C.: November 14, 2001.

Navy Aircraft Carriers: Cost-Effectiveness of Conventionally and 

Nuclear-Powered Carriers. GAO/NSIAD-98-1. Washington, D.C.: August 27, 

1998.

Aircraft Acquisition: Affordability of DOD’s Investment Strategy. 

GAO/NSIAD-97-88. Washington, D.C.: September 8, 1997.

Surface Combatants: Navy Faces Challenges Sustaining Its Current 

Program. GAO/NSIAD-97-57. Washington, D.C.: May 21, 1997.

Cruise Missiles: Proven Capability Should Affect Aircraft and Force 

Structure Requirements. GAO/NSIAD-95-116. Washington, D.C.: April 20, 

1995.

Navy’s Aircraft Carrier Program: Investment Strategy Options. 

GAO/NSIAD-95-17. Washington, D.C.: January 1, 1995.

Navy Carrier Battle Groups: The Structure and Affordability of the 

Future Force. GAO/NSIAD-93-74. Washington, D.C.: February 25, 1993.

GAO Contact Henry L. Hinton, Jr., (202) 512-4300 

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the 2004 defense plan

Budget authority 640 1,440 720 0 900

Outlays 430 600 800 720 1,030
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 15 GAO-04-649 Opportunities for Oversight

Acquire Conventionally 

Rather Than NuclearPowered Aircraft 

Carriers

Throughout the 1960s and most of the 1970s, the Navy pursued a goal of 

creating a fleet of nuclear carrier task forces. The centerpiece of these task 

forces, the nuclear-powered aircraft carrier, would be escorted by nuclearpowered surface combatants and nuclear-powered submarines. In 

deciding to build nuclear-powered surface combatants, the Navy believed 

that the greatest benefit would be achieved when all the combatant ships in 

the task force were nuclear-powered. However, the Navy stopped building 

nuclear-powered surface combatants after 1975 because of the high cost. 

The last nuclear-powered surface combatants were decommissioned in the 

late 1990s because they were not cost-effective to operate and maintain.

Our analysis shows that both conventional and nuclear aircraft carriers 

have been effective in fulfilling U.S. forward presence, crisis response, and 

war-fighting requirements and share many characteristics and capabilities. 

Conventionally and nuclear-powered carriers both have the same standard 

air wing and train to the same mission requirements. Each type of carrier 

offers certain advantages. For example, conventionally powered carriers 

spend less time in extended maintenance and, as a result, can provide more 

forward presence coverage. By the same token, nuclear carriers can store 

larger quantities of aviation fuel and munitions and, as a result, are less 

dependent upon at-sea replenishment. There was little difference in the 

operational effectiveness of nuclear and conventional carriers in the 1991 

Persian Gulf War.

The United States maintains a continuous presence in the Pacific region by 

homeporting a conventionally powered carrier in Japan. If the Navy 

switches to an all-nuclear carrier force, it would need to homeport a 

nuclear-powered carrier there to maintain the current level of worldwide 

overseas presence with a 12-carrier force. Homeporting a nuclear-powered 

carrier in Japan could prove difficult and costly because of the need for

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Theme Improve efficiency
Appendix III

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Efficiency, and Effectiveness of Federal 

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support facilities, infrastructure improvements, and additional personnel.1

The United States would need a larger carrier force if it wanted to maintain 

a similar level of presence in the Pacific region with nuclear-powered 

carriers homeported in the United States. During fiscal year 2003, a new 

nuclear-powered carrier replaced a retiring conventionally powered 

carrier, leaving a mix of 10 nuclear and 2 conventionally powered carriers.

The life-cycle costs—investment, operating and support, and inactivation 

and disposal costs—are greater for nuclear-powered carriers than 

conventionally powered carriers. Our analysis, based on historical and 

projected costs, shows that life-cycle costs for conventionally powered and 

nuclear-powered carriers (for a notional 50-year service life) are estimated 

at $14.1 billion and $22.2 billion (in fiscal year 1997 dollars), respectively.

In assessing design concepts for the next class of aircraft carriers—and 

consistent with the Navy’s objectives to reduce life-cycle costs by 20 

percent—our analysis indicates that national security requirements can be 

met at less cost with conventionally powered carriers rather than nuclearpowered carriers. 

CBO estimates that savings could be achieved if the Congress chose to 

acquire a conventionally powered carrier in 2007 instead of a nuclearpowered carrier.

Five-Year Savings

Source: Congressional Budget Office.

Note: The Navy’s plans call for production of a replacement carrier (CVN-21) in 2007 and a refueling 

complex overhaul of an existing carrier (CVN-70) in 2006. This option would replace the CVN-21 

carrier with a CVX carrier.

1

The State Department has noted that the entry of nuclear-powered vessels into Japanese 

ports remains sensitive in Japan and there would have to be careful consultations with the 

government of Japan should the U.S. Government wish to homeport a nuclear-powered 

carrier in Japan.

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the 2004 defense plan

Budget authority -50 100 2,280 1,140 -650

Outlays -90 -70 230 630 690
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 17 GAO-04-649 Opportunities for Oversight

Related GAO Products Navy Aircraft Carriers: Cost-Effectiveness of Conventionally and 

Nuclear-Powered Carriers. GAO/NSIAD-98-1. Washington, D.C.: August 27, 

1998.

Nuclear Waste: Impediments to Completing the Yucca Mountain 

Repository Project. GAO/RCED-97-30. Washington, D.C.: January 17, 1997.

Navy Carrier Battle Groups: The Structure and Affordability of the 

Future Force. GAO/NSIAD-93-74. Washington, D.C.: February 25, 1993.

Nuclear-Powered Ships: Accounting for Shipyard Costs and Nuclear 

Waste Disposal Plans. GAO/NSIAD-92-256. Washington, D.C.: July 1, 1992.

GAO Contact Henry L. Hinton, Jr., (202) 512-4300
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 18 GAO-04-649 Opportunities for Oversight

Reorganize C-130 

Reserve Squadrons

Currently, the majority of the Air Force’s C-130 aircraft is in the reserve 

component, that is, assigned to the Air Force Reserve and the Air National 

Guard. Typically, reserve component wings are organized in one squadron 

of 8 C-130 aircraft. However, active Air Force wings flying the same aircraft 

are generally organized in two to three squadrons of 14 C-130 aircraft. 

Given this organizational approach, reserve component C-130 aircraft are 

widely dispersed throughout the continental United States, Hawaii, and 

Alaska.

The Air Force could reduce costs and meet peacetime and wartime 

commitments if it reorganized its reserve component C-130 aircraft into 

larger squadrons and wings at fewer locations. These savings would 

primarily result from fewer people being needed to operate these aircraft. 

For example, we reported in 1998 that redistributing 16 C-130 aircraft from 

two 8-aircraft reserve wings to one 16-aircraft reserve wing could save 

about $11 million dollars annually. This reorganization could eliminate 

about 155 full-time positions and 245 part-time positions; the decrease in 

full-time positions is especially significant, since the savings associated 

with these positions represents about $8 million, or 75 percent of the total 

savings. Fewer people would be needed in areas such as wing 

headquarters, logistics, operations, and support group staffs as well as 

maintenance, support, and military police squadrons.2

Several alternatives could be developed to redistribute existing reserve 

component C-130 aircraft into larger squadrons. Sufficient personnel could 

be recruited for the larger squadrons, and most locations’ facilities could be 

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Theme Improve efficiency

2

To the extent that alternatives are selected that would cause civilian personnel reductions 

that exceed the thresholds established in 10 U.S.C. 2687, the department would have to 

follow the procedures provided in that section.
Appendix III

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inexpensively expanded to accommodate the unit sizes. Overall savings 

will depend on the organizational model selected, but each should produce 

savings to help make additional funding available for force modernization. 

The alternative that requires the most reorganizing would increase the 

squadron size to 16 aircraft for the C-130 by redistributing aircraft from 13 

C-130 squadrons to other squadrons.

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Product Air Force Aircraft: Reorganizing Mobility Aircraft Units Could Reduce 

Costs. GAO/NSIAD-98-55. Washington, D.C.: January 21, 1998.

GAO Contact Henry L. Hinton, Jr., (202) 512-4300

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the 2004 defense plan

Budget authority 73 142 216 279 304

Outlays 60 128 200 264 296
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 20 GAO-04-649 Opportunities for Oversight

Continue Defense 

Infrastructure Reform

Although the Department of Defense (DOD) has made significant 

reductions in defense force structure and military spending since the end of 

the Cold War, it has not achieved commensurate reductions in 

infrastructure costs.3

 DOD recognized that it must make better use of its 

scarce resources and announced a major reform effort—the Defense 

Reform Initiative (DRI). This effort began in November 1997. A major 

thrust of the DRI was to reduce unneeded infrastructure, primarily through 

a number of initiatives aimed at substantially streamlining and improving 

the economy and efficiency of DOD’s business operations and support 

activities. The resulting savings were expected to help DOD modernize its 

war fighting forces.

Secretary of Defense Rumsfeld announced his own management reform 

program in 2001, referred to as the DOD Business Transformation program, 

also with the intent of improving the effectiveness and efficiency of the 

department’s business operations. The new management structure—led by 

the Senior Executive Council and the Business Initiative Council—

recommends ways to improve DOD’s business activities and transform the 

U.S. military into a 21st century fighting force. The Senior Executive 

Committee, which includes the Secretary and deputy secretaries of 

Defense and the service secretaries, is expected to meet monthly and use 

its members’ unique qualifications as business leaders to recommend 

changes to DOD’s business practices. The second committee, the Business 

Initiative Council, also includes the service secretaries but is chaired by the 

Under Secretary of Defense for Acquisition, Technology, and Logistics. Its 

Primary agency Department of Defense 

Accounts Multiple

Spending type Discretionary 

Budget subfunction 051/Department of Defense—Military

Theme Improve efficiency

3

DOD defines infrastructure as those activities that provide support services to mission 

programs, such as combat forces, and primarily operate from fixed locations. They include 

such program elements as installation support, acquisition infrastructure, central logistics, 

central training, central medical, and central personnel.
Appendix III

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mission is to recommend good business practices and achieve cost savings 

that will help pay for other DOD priorities. While council members have 

put forth many new initiatives, they also have endorsed several initiatives 

that were part of the DRI program (e.g., family housing and utilities 

privatization and public-private competitions under the Office of 

Management and Budget’s Circular A-76). Further, most of the other DRI 

initiatives have continued, although not under the direct oversight of the 

new business transformation structure. The new councils plan to offer 

opportunities to fundamentally change DOD’s business practices and 

reduce infrastructure costs.

Despite the change in the management structure, a number of old 

initiatives continue. However, progress in achieving the goals is mixed, as 

the following illustrate. A major efficiency initiative is to subject 226,000 

government positions to public-private competition using OMB Circular A76 or to subject those positions to alternative sourcing such as partnering 

or divestiture. Competitive sourcing is one of the five governmentwide 

initiatives in the President’s Management Agenda. Under this initiative, 

OMB directed agencies to compete 15 percent of positions deemed 

commercial in their fiscal year 2000 Federal Activities Inventory Reform 

Act inventories by the end of fiscal year 2003, with the ultimate goal of at 

least 50 percent through fiscal year 2008. DOD reported that as of June 1, 

2003 it has met OMB’s short-term goal. While OMB has revised its goals to 

allow each agency flexibility in order to better reflect agency missions, 

DOD’s goal is to meet the 50 percent target by 2009. Regardless, this longerterm goal could be a challenge, requiring completion of a significantly 

larger number of positions for study than has actually been completed in a 

similar period in the past. DOD has not attached savings targets to these 

goals, although it has in the past. Nevertheless, we have noted that these 

efforts can produce significant savings regardless of whether governmental 

organizations or private contractors win the competitions. However, we 

have raised questions about the precision of DOD’s past savings estimates 

and the likelihood that the savings will not be realized as quickly as 

projected. Congress authorized a base realignment and closure (BRAC) 

round in 2005 4

 to reduce unneeded infrastructure and free up funds for 

readiness, weapon modernization, and other needs. DOD projects that 

base closure rounds could save several billion dollars annually once 

realignment and closure actions are completed and the costs of 

4

The National Defense Authorization Act for Fiscal Year 2002 authorized another Base 

Realignment and Closure (BRAC) round to be conducted in 2005.
Appendix III

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Page 22 GAO-04-649 Opportunities for Oversight

implementing the actions are offset by savings. While we have previously 

raised questions about the precision of DOD’s savings estimate, our work 

has nevertheless shown that the department will realize net annual 

recurring savings once initial investment costs from implementing 

realignment and closure decisions have been offset.

Undoubtedly, opportunities remain for DOD to reduce its infrastructure 

costs through additional strategic sourcing, streamlining, consolidating, 

and possibly privatizing. However, DOD needs a plan and investment 

strategy to maximize the results of these efforts. In particular, a 

comprehensive integrated consolidation and downsizing plan that sets 

goals, identifies specific initiatives, and sets priorities across DOD is 

needed to guide and sustain reform efforts. Ongoing DRI initiatives from 

the previous administration as well as initiatives involving the business 

areas being evaluated by the Business Initiatives Council need to be 

addressed by the plan. Savings for this option cannot be fully estimated 

until such a plan is developed. 

CBO was not able to determine the budgetary effect of this option.

Related GAO Products Defense Management: DOD Faces Challenges Implementing Its Core 

Competency Approach and A-76 Competitions. GAO-03-818. Washington, 

D.C.: July 15, 2003.

Defense Management: New Management Reform Program Still Evolving. 

GAO-03-58. Washington, D.C.: December 12, 2002.

Military Base Closures: Progress in Completing Actions from Prior 

Realignments and Closures. GAO-02-433. Washington, D.C.: April 5, 2002.

Major Management Challenges and Program Risks, Department of 

Defense. GAO-01-244. Washington, D.C.: January 2001.

Future Years Defense Program: Risks in Operation and Maintenance and 

Procurement Programs. GAO-01-33. Washington, D.C.: October 5, 2000.

Defense Infrastructure: Improved Performance Measures Would Enhance 

Defense Reform Initiative. GAO/NSIAD-99-169. Washington, D.C.: August 

4, 1999.

Defense Reform Initiative: Organization, Status and Challenges. 

GAO/NSIAD-99-87. Washington, D.C.: April 21, 1999.
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

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Page 23 GAO-04-649 Opportunities for Oversight

Defense Reform Initiative: Progress, Opportunities, and Challenges. 

GAO/T-NSIAD-99-95. Washington, D.C.: March 2, 1999.

Force Structure: A-76 Not Applicable to Air Force 38th Engineering 

Installation Wing Plan. GAO/NSIAD-99-73. Washington, D.C.: February 26, 

1999.

Major Management Challenges and Program Risks: Department of 

Defense. GAO/OCG-99-4. Washington, D.C.: January 1999.

Army Industrial Facilities: Workforce Requirements and Related Issues 

Affecting Depots and Arsenals. GAO/NSIAD-99-31. Washington, D.C.: 

November 30, 1998.

Military Bases: Review of DOD’s 1998 Report on Base Realignment and 

Closure. GAO/NSIAD-99-17. Washington, D.C.: November 13, 1998.

Defense Infrastructure: Challenges Facing DOD in Implementing Reform 

Initiatives. GAO/T-NSIAD-98-115. Washington, D.C.: March 18, 1998.

Best Practices: Elements Critical to Successfully Reducing Unneeded 

RDT&E Infrastructure. GAO/NSIAD/RCED-98-23. Washington, D.C.: 

January 8, 1998.

Future Years Defense Program: DOD’s 1998 Plan Has Substantial Risk in 

Execution. GAO/NSIAD-98-26. Washington, D.C.: October 23, 1997.

1997 Defense Reform Bill: Observations on H.R. 1778. GAO/T-NSIAD-97-

187. Washington, D.C.: June 17, 1997.

Defense Infrastructure: Demolition of Unneeded Buildings Can Help 

Avoid Operating Costs. GAO/NSIAD-97-125. Washington, D.C.: May 13, 

1997.

DOD High-Risk Areas: Eliminating Underlying Causes Will Avoid 

Billions of Dollars in Waste. GAO/T-NSIAD/AIMD-97-143. Washington, 

D.C.: May 1, 1997.

Defense Acquisition Organizations: Linking Workforce Reductions With 

Better Program Outcomes. GAO/T-NSIAD-97-140. Washington, D.C.: April 

8, 1997.
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 24 GAO-04-649 Opportunities for Oversight

Defense Budget: Observations on Infrastructure Activities. GAO/NSIAD97-127BR. Washington, D.C.: April 4, 1997.

GAO Contact Henry L. Hinton, Jr., (202) 512-4300
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

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Page 25 GAO-04-649 Opportunities for Oversight

Improve DOD 

Procurement Practices 

Regarding Canceling 

Orders 

As of September 30, 2002, Department of Defense (DOD) records showed 

that the department had inventory on order valued at about $1.75 billion 

that would not have been ordered based on current requirements. We have 

issued several reports in the past few years highlighting weaknesses in the 

department’s requirements determination processes for materials and its 

procedures for canceling orders for items that are no longer needed. We 

reported in May 2003 that the causes most frequently cited by DOD 

inventory managers for excess inventory are (1) buildup of repair parts to 

support a new program or for a retrofit, modification, upgrade, or 

replacement; (2) foreign military sales program requirements; (3) low or 

decreasing demand for a specific part; and (4) retirement or phasing out of 

an aircraft. We also reported in May 2001 that the Army was unable to 

accurately identify its requirements for war reserve spare parts because (1) 

it was not using the best available data concerning the rate at which spares 

would be consumed during wartime and (2) a potential mismatch existed 

between how the Army determined spare parts requirements for war 

reserves and how the Army plans to repair equipment on the battlefield.

Additional budgetary savings in this area can be anticipated because the 

department has a number of initiatives underway to better define spare 

parts requirements and to more efficiently cancel orders for items it 

determines are no longer needed.

The Congress may wish to continue to monitor the DOD’s annual reports 

on the value of its unneeded inventory in order to ensure that the value 

continues to decrease. In addition, the Congress could consider requiring 

that the department’s logistics transformation initiatives include 

(1) enhancements to its models for computing inventory requirements to 

ensure greater accuracy and (2) more efficient procedures for canceling 

orders it determines are no longer needed. 

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Theme Improve efficiency
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

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Page 26 GAO-04-649 Opportunities for Oversight

CBO was not able to determine the budgetary effect of this option.

Related GAO Products Defense Inventory: Air Force Item Manager Views of Repair Parts Issues 

Consistent With Issues Reported in the Past. GAO-03-684R. Washington, 

D.C.: May 21, 2003.

Major Management Challenges and Program Risks: Department of 

Defense. GAO-03-98. Washington, D.C.: January 2003.

GAO Contact William Solis, (202) 512-8365
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 27 GAO-04-649 Opportunities for Oversight

Revising Occupancy 

Policies Could Reduce 

Barracks Requirements

In January 2003, GAO reported that over the next few years the military 

services plan to eliminate barracks with gang latrines and provide private 

sleeping rooms (to meet the Department of Defense’s (DOD) 1+1 barracks 

design standard) for all permanent party service members. The Navy has 

an additional goal to provide barracks for sailors who currently live aboard 

ships when in homeport. To implement these goals, the services plan to 

spend about $6 billion over the next 7 years to construct new barracks.

GAO reported that the DOD Housing Management manual, which 

provides policy guidance about who should live in barracks, appears to be 

out of date and is under revision, and the military services have adopted 

different barracks occupancy requirements. The rationale for the services’ 

requirements, and in particular for the requirement that more experienced 

junior service members live in barracks, appears to be a matter of military 

judgment and preference with less emphasis on systematic, objective 

analyses. Requiring more personnel (more pay grades) to live in barracks 

than is justified results in increased barracks program and construction 

costs and may be inconsistent with DOD’s policy to maximize reliance on 

civilian housing. There are also quality-of-life implications because most 

junior service members prefer to live off base. GAO reported that the 

timely resolution of these matters could potentially affect future budget 

decisions by reducing the number of new barracks to construct.

GAO recommended that DOD revise its barracks occupancy guidance 

based, at least in part, on the results of objective, systematic analyses that 

consider the contemporary needs of junior servicemembers, quality-of-life 

issues, the services’ mission requirements, and other relevant data to 

determine who should be required to live in barracks on base or permitted 

to reside off base and seek to ensure greater consistency in requirements 

among the military services to the extent practical. DOD agreed, in 

principle, to base the department’s barracks policy revision and the 

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Theme Improve efficiency
Appendix III

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services’ barracks occupancy requirements—at least in part—on the 

results of systematic analyses, but left unclear the extent to which it is 

likely to do so. GAO continues to believe that, given the variations noted in 

the report, the services’ requirements determinations should be supported 

with more objective analyses to the extent practical. An option for 

Congress is to require DOD to revise its barracks occupancy guidance 

according to our above recommendation, lowering significantly the future 

construction and operation costs for barracks. 

Although CBO agrees that the option may result in savings, it could not 

develop a savings estimate for this option.

Related GAO Products Military Housing: Opportunities That Should Be Explored to Improve 

Housing and Reduce Costs for Unmarried Junior Servicemembers. GAO03-602. Washington, D.C.: June 10, 2003.

Military Housing: Opportunity for Reducing Planned Military 

Construction Costs for Barracks. GAO-03-257R. Washington, D.C.: January 

7, 2003.

GAO Contact Barry W. Holman, (202) 512-8412
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 29 GAO-04-649 Opportunities for Oversight

Reduce Construction 

Cost of Military 

Barracks

In June 2003, GAO reported that opportunities existed to reduce costs of 

constructing barracks through adoption of private-sector construction 

practices. Traditional barracks construction practices call for the use of 

steel frame, concrete, and cement block. Similar multi-unit housing in the 

private sector, such as college dormitories and hotels, normally use 

construction practices that include the use of wood frame construction.

The Army estimated that the use of private-sector wood frame construction 

instead of steel frame, concrete, and cement block could reduce barracks 

construction costs by 23 percent, or about $11,200 per occupant. Because 

of its lower initial construction costs and comparable operations and 

maintenance costs, Army analyses also indicate that total lifetime costs for 

barracks constructed with private-sector construction practices would be 

less than barracks using traditional construction practices. For example, 

the Army estimated that using residential construction practices will cost 

from $12,600 to $31,800 less per occupant at its pilot project under 

construction at Fort Meade, Maryland. However, barriers—including 

unanswered questions about durability and the ability of wood-frame 

barracks to meet all antiterrorism force protection requirements—have 

prevented widespread adoption of these cost saving private-sector 

practices.

GAO recommended that the military services jointly undertake an 

engineering study to resolve questions about use of private-sector 

construction practices for barracks. We also recommended that, if the 

engineering study shows that barracks built with private-sector 

construction practices can economically meet all force protection 

requirements, the military services adopt to the maximum extent practical 

private-sector construction practices for future barracks projects. DOD 

stated that it supports the study and that the Army Corps of Engineers had 

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Theme Improve efficiency
Appendix III

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begun a study of private-sector construction practices and compliance with 

antiterrorism force protection requirements for barracks.

One option for Congress, providing that the engineering studies show that 

barracks built with residential construction practices can economically 

meet all force protection requirements, is to require that the funding 

amounts that DOD requests for barracks construction projects be based on 

use of residential construction practices to the maximum extent practical. 

CBO was not able to determine the budgetary effect of this option.

Related GAO Products Military Housing: Opportunities That Should Be Explored to Improve 

Housing and Reduce Costs for Unmarried Junior Servicemembers. GAO03-602. Washington, D.C.: June 10, 2003.

Military Housing: Opportunity for Reducing Planned Military 

Construction Costs for Barracks. GAO-03-275R. Washington, D.C.: 

January 7, 2003.

GAO Contact Barry Holman, (202) 512-8412
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 31 GAO-04-649 Opportunities for Oversight

Reduce the Corrosion 

of Military Assets

Congress has recognized the need to significantly reduce the economic 

burden on the military services from damage caused by corrosion5

 on 

military equipment and infrastructure and of the efforts to mitigate its 

adverse affects. In fact, corrosion’s impact on military costs appears to be 

enormous, representing one of the largest life-cycle cost components of 

military weapon systems and infrastructure. In a 2001 governmentsponsored study, corrosion was estimated to cost the Department of 

Defense (DOD) at least $20 billion a year.

The Bob Stump National Defense Authorization Act for Fiscal Year 2003 

required the DOD to take several steps to address corrosion and provide 

Congress a long-term strategy for corrosion prevention and mitigation. 

Major commands, program offices, and research and development centers 

servicewide have made and continue to make improvements in the 

methods and techniques for preventing corrosion. For example, durable 

coatings, composite materials, and cathodic protection are being 

incorporated to an increasing extent in the design and construction of 

military facilities and equipment to reduce corrosion-related maintenance. 

The military services estimate that as much as 25 to 35 percent of corrosion 

costs can be eliminated by using corrosion prevention efforts, amounting 

to billions of dollars in potential savings each year. 

There is much evidence that corrosion is an extensive problem and impacts 

military costs, readiness and safety. For example, in 1993, the Army 

estimated spending about $2 billion to $2.5 billion a year to mitigate the 

Primary agency Department of Defense

Accounts Multiple 

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Theme Improve efficiency

5

 Corrosion—the unintended destruction or deterioration of a material due to interaction 

with the environment—affects all military assets, including approximately 350,000 ground 

and tactical vehicles, 15,000 aircraft and helicopters, 1,000 strategic missiles, and 300 ships; 

and hundreds of thousands of additional mission support assets and thousands of facilities.
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corrosion of wheeled vehicles, including 5-ton trucks. Also, in a 1998 

analysis, the estimated cost to repair damage to Army helicopters 

attributed to corrosion was about $4 billion. In addition, many proposed 

projects—even those with the potential for very large future-cost savings—

are often assigned a low funding priority compared to operations and 

repair projects offering more immediate results, potentially costing billions 

of dollars in additional net savings annually that would accrue from a longterm reduction in corrosion of military equipment and infrastructure. For 

example, the Naval Sea Systems Command has developed durable coatings 

that increase the amount of corrosion protection for various kinds of tanks 

(such as fuel and ballast tanks) on Navy ships to 20 years instead of 5 years. 

While the Navy has installed the coatings on less than 7 percent of the 

tanks, it has estimated the net savings at about $10 million a year. If the 

Navy fully funded this effort, it projects than an additional $161 million 

annual net cost savings could be achieved.

Without a more systematic approach to corrosion problems, prevention 

efforts that have a high return on investment potential will likely continue 

to be underresourced and continue to proceed at a slow pace. We have 

identified several examples of projects, such as the Army National Guard’s 

Controlled Humidity Preservation project that pumps dehumidified air into 

buildings or equipment to reduce the rate of corrosion, that show potential 

for a high return on investment and advances in the technologies of 

corrosion prevention but which have not, for various reasons, been fully 

implemented. In this case, project officials claimed net savings of $225 

million through the end of fiscal year 2002.

DOD and the military services have not systematically assessed proposals 

for corrosion control projects; they have disseminated project results on a 

limited, ad hoc basis. This approach has led to readiness and safety issues 

as well as billions of dollars of corrosion-related maintenance costs for 

DOD and the services annually. 

DOD recently submitted its report to Congress on its long-term strategy for 

reducing corrosion and its effects on military equipment and facilities.6

 

However, the department has had little time to implement the strategy and, 

6

 In December 2003, DOD submitted to Congress its Long-Term Strategy to Reduce 

Corrosion and the Effects of Corrosion on the Military Equipment and Infrastructure of 

the Department of Defense. The Authorization Act also requires that GAO monitor the 

implementation of the strategy and provide an assessment no later than June 2, 2004.
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as a result, has not yet demonstrated progress towards reducing corrosion 

impacts. To minimize the costs associated with corrosion-related 

maintenance, one option for the Congress is to require DOD to place a high 

priority on the implementation of its new strategy to prevent and mitigate 

corrosion, and that the strategy emphasize coordination within and among 

the services and has effective incentives and priorities. 

Although CBO agrees that the option may result in savings, it could not 

develop a savings estimate for this option.

Related GAO Product Defense Management: Opportunities to Reduce Corrosion Costs and 

Increase Readiness. GAO-03-753. Washington, D.C.: July 7, 2003.

GAO Contact William Solis, (202) 512-8365
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Page 34 GAO-04-649 Opportunities for Oversight

Limit Commitment to 

Production of the F/A22 Fighter until 

Operational Testing Is 

Complete

The fiscal year 2004 Defense Appropriations Act provided funds for lowrate initial production of 22 F/A-22 aircraft, and Department of Defense 

(DOD) plans to procure 24 aircraft in fiscal year 2005, 26 aircraft in fiscal 

year 2006, and begin full-rate production of 32 aircraft in fiscal year 2007.

In several reports over the last 8 years, and as recently as March 2003, GAO 

concluded that the DOD should minimize commitments to F/A-22 

production until completion of initial operational testing, now planned for 

October 2004. Limiting initial production rates until completion of 

operational testing affords the opportunity to confirm the stability and 

soundness of a new system before committing large amounts of production 

funding to purchase aircraft. In the past, buying production articles before 

they could be adequately tested has resulted in buying systems that require 

modifications to achieve satisfactory performance. The F/A-22 

development and test program is ongoing. Avionics problems have not 

been resolved and the start of initial operational testing has been delayed 

another 7 months to March 2004. While the start has slipped 7 months, the 

completion date has slipped only 4 months to October 2004, compressing 

the time available to complete this testing. With the aircraft still 

experiencing problems, the start of testing could be further delayed. 

Additionally, if problems occur during initial operational testing, more time 

will be needed to complete actual flight testing, analysis of data, and 

reporting of the results. These results are needed to prepare the Beyond 

Low-Rate Initial Production Report required to start full rate production. 

The Congress for fiscal year 2004 has approved low-rate initial production 

of 22 aircraft. To avoid the acceleration of production until completion of 

operational testing, the low-rate production could be maintained at 22 

aircraft through fiscal year 2005. If Congress were to limit funding to no 

more than 22 aircraft in fiscal year 2005, and then proceed with the planned 

acceleration of production to 26 aircraft in 2006, and 32 aircraft in 2007, 

Primary agency Department of Defense

Account Aircraft Procurement, Air Force (57-3010)

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Theme Reassess objectives
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budget savings could be achieved. Conversely, lower production rates 

could increase average procurement cost over the life of the program and, 

if the Air Force maintains its plan to procure 277 production aircraft, lead 

to difficulties in completing the production program within the production 

cost estimate.

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Best Practices: Better Acquisition Outcomes Are Possible If DOD Can 

Apply Lessons from F/A-22 Program. GAO-03-645T. Washington, D.C.: 

April 11, 2003.

Tactical Aircraft: Status of the F/A-22 Program. GAO-03-603T. 

Washington, D.C.: April 2, 2003.

Tactical Aircraft: DOD Should Reconsider Decision to Increase F/A-22 

Production Rates While Development Risks Continue. GAO-03-431. 

Washington, D.C.: March 14, 2003.

Tactical Aircraft: DOD Needs to Better Inform Congress about 

Implications of Continuing F/A-22 Cost Growth. GAO-03-280. 

Washington, D.C.: February 28, 2003.

GAO Contact Allen Li, (202) 512-4841

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the defense 2004 plan

Budget authority 288 -40 -35 -20 -17

Outlays 76 120 27 -10 -18
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Reassess Business 

Cases for Selected 

Weapon Systems 

Before Making Further 

Investments 

The Department of Defense (DOD) is currently in the midst of a 

modernization and transformation effort that will drive its spending 

priorities well into the next decade. Investment in the research, 

development, and procurement of major weapon systems is expected to 

grow considerably as these efforts progress, rising from $135 billion in 

fiscal year 2004 to a projected $166 billion in 2009. DOD’s total investment 

over this period will, in fact, approach almost $1 trillion. Weapon systems 

routinely take much longer to field, cost more to buy, and require more 

support than investment plans provide for. This results in reduced buying 

power of the defense dollar, delayed capabilities for the war fighter, and 

unplanned—and possibly unnecessary—trade-offs in desired acquisition 

quantities, as well as an adverse ripple effect among other weapon 

programs or defense needs.

The Army dealt with such consequences in its recent decision to end 

development of the RAH-66 Comanche helicopter program after almost 16 

years of development. Since July 2000, the research and development costs 

had grown 41 percent, the unit costs had grown 62 percent and the 

quantities had shrunk 46 percent. While the need for an armed 

reconnaissance helicopter may remain, the Army in effect decided that the 

business case for investing in the Comanche as the best solution for that 

need was no longer valid. Instead the Army opted for other investments 

that would provide significantly more quantities of less expensive aircraft 

and take into consideration lessons learned from recent military 

operations. There are several weapon system programs that have 

experienced significant cost increases and schedule delays and were 

conceived before recent operations such as those in Afghanistan and Iraq. 

An option for the Congress is to have the Secretary of Defense reexamine 

the business cases for such programs before additional investments are 

made. Such a business case analysis should consider (1) the continued 

need for the capability and (2) whether the program at hand is still the best 

Primary agency Department of Defense

Account Multiple

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Theme Reassess objectives
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way to meet the need given lessons learned from recent military 

operations, the likelihood that the weapon system can be delivered within 

estimated costs and schedule, and the viability of alternatives. Weapon 

system programs that warrant a renewed look at their business cases 

follow. 

F/A-22 Raptor Fighter The Air Force's F/A-22 program began in 1986. It was originally planned to 

be an air superiority fighter, but is currently planned to also have air-toground attack capability. It is being designed with advanced features, such 

as stealth characteristics, to make it less detectable to adversaries and 

capable of high speeds for long ranges. It also has integrated aviation 

electronics (avionics) designed to greatly improve pilots' awareness of the 

situation surrounding them. It is designed to replace the Air Force's F-15 

aircraft.

Factors that affect its business case include:

• A 127 percent increase in development costs.

• A 122 percent increase in unit procurement costs.

• A 111 percent increase in development time.

• A 94 percent increase in testing time.

Instead of buying 750 aircraft as originally planned, the Air Force can only 

afford 218 aircraft, assuming a production cost limitation that Congress has 

imposed is maintained. Even without the limitation, the Air Force plans 

allow for only 277 aircraft. 

Furthermore, the development and test program continues to experience 

problems and risks further delays. Initial operational testing, to 

demonstrate the system’s effectiveness and suitability, has not yet started. 

The F/A-22’s advanced avionics system, maintenance systems and its 

reliability are all experiencing problems that could result in further 

increases in development costs and delays in delivering the F/A-22 to the 

war fighter. 

The Air Force has also decided to add, as part of its modernization plan, an 

air-to-ground attack capability not previously envisioned but now 

considered necessary to increase the utility of the aircraft. The Office of 
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Secretary of Defense estimated the Air Force would need as much as $11.7 

billion to develop and incorporate the planned modernization efforts into 

the F/A-22. Excluding these improvements and assuming no new problems 

occur, $33 billion (in fiscal year 2004 dollars) will be needed to complete 

the program from fiscal year 2005 on. This does not include the cost needed 

to provide new avionics computer processors and architecture, which are 

needed to support some planned enhancements. The Air Force version of 

the Joint Strike Fighter currently in development will primarily be an air-toground replacement for the F-16 and the A-10, and should be considered in 

any review of the F/A-22 business case.

Advanced SEAL Delivery 

System (ASDS)

The Special Operations Forces’ ASDS has been in development since 1994. 

It is a battery-powered, dry interior mini-submarine developed for 

clandestine insertion and extraction of Navy SEALs and their equipment. It 

is carried to its deployment area by a specially configured SSN-688 class 

submarine. ASDS is intended to provide increased range, payload, onstation loiter time, and endurance over current submersibles.

Factors that affect its business case include:

• A 227 percent increase in development costs.

• A 985 percent increase in production costs.

• A 235 percent increase in unit procurement costs.

Two of ASDS's three critical technologies, the battery and the propulsion, 

are not fully mature, even though system development began over 9 years 

ago. Key technical problems, such as the battery and the propeller, were 

discovered late—during testing on the first boat—rather than in 

component or subsystem-level testing. Although significant progress has 

been made in the past year, not all critical technologies have achieved 

maturity and will not meet maturity until the second ASDS boat is 

produced, currently estimated to be in 2008. Assuming no new problems 

are encountered, $1.3 billion (in fiscal year 2004 dollars) will be needed to 

complete the program from fiscal year 2005 and beyond.

Extended Range Guided 

Munition (ERGM)

The Navy’s ERGM program began development in 1996. It is a rocketassisted projectile that is fired from a gun aboard ships. It can be guided to 

targets on land at ranges of between about 15 and 50 nautical miles to 
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provide fire support for ground troops. ERGM is expected to offer 

increased range and accuracy compared to the Navy's current gun range of 

13 nautical miles. ERGM requires modifications to existing 5-inch guns, a 

new munitions-handling system (magazine), and a new fire control system.

Factors that affect its business case include:

• A 316 percent increase in development costs.

• A 262 percent increase in unit procurement costs.

• A 147 percent increase in development time.

• A 63 percent reduction in quantities.

The ERGM program began development with very few of its critical 

technologies mature. Design stability was also not achieved by the design 

review in May 2003. Finally, due to several test failures, the program did 

not meet a Navy deadline that required successful completion of two landbased flight tests by November 2003. The Navy is conducting an 

independent assessment of the program's readiness to proceed with further 

flight-testing. 

Program costs may grow because the current estimate is based on a much 

lower production quantity than is contained in current program documents 

and the Navy has yet to establish a firm ERGM inventory requirement. 

In October 2003, the Navy issued a solicitation for alternative precisionguided munition concepts that could be a complement or competitor to 

ERGM. In particular, the Navy is concerned about the unit cost of the 

ERGM round and is looking to develop alternatives that could offer cost 

savings. The Navy plans to spend $35 million in fiscal years 2004 and 2005 

to pursue a technology demonstration of other extended range munition 

concepts by September 2005. Assuming no new problems are encountered, 

$207 million (in fiscal year 2004 dollars) will be needed to complete the 

program from fiscal year 2005 and beyond.

CBO was not able to determine the budgetary effect of this option.

Related GAO Products Defense Acquisitions: Assessments of Major Weapon Programs. GAO-04-

248. Washington, D.C.: March 31, 2004.
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 40 GAO-04-649 Opportunities for Oversight

Tactical Aircraft: Changing Conditions Drive Need for New F/A-22 

Business Case. GAO-04-391. Washington, D.C.: March 15, 2004.

Defense Acquisitions: Assessments of Major Weapon Programs. GAO-03-

476. Washington, D.C.: May 15, 2003.

Best Practices: Better Acquisition Outcomes Are Possible If DOD Can 

Apply Lessons from F/A-22 Program. GAO-03-645T. Washington, D.C.: 

April 11, 2003.

Tactical Aircraft: Status of the F/A-22 Program. GAO-03-603T.

Washington, D.C.: April 2, 2003.

Defense Acquisitions: Advanced SEAL Delivery System Program Needs 

Increased Oversight. GAO-03-442. Washington, D.C.: March 31, 2003.

Tactical Aircraft: DOD Should Reconsider Decision to Increase F/A-22 

Production Rates While Development Risks Continue. GAO-03-431. 

Washington, D.C.: March 14, 2003.

Tactical Aircraft: DOD Needs to Better Inform Congress about 

Implications of Continuing F/A-22 Cost Growth. GAO-03-280.

Washington, D.C.: February 28, 2003.

GAO Contact Paul Francis, (202) 512-2811
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 41 GAO-04-649 Opportunities for Oversight

Address Overpayments 

to Defense Contractors 

Ensuring prompt, proper, and accurate payments is a key element of a 

sound contract management process. Yet, for the Department of Defense 

(DOD), completing such basic tasks has long been a challenge. GAO first 

reported problems with contractor overpayments in 1994. That report, and 

those issued subsequently, noted that contractors were refunding hundreds 

of millions of dollars to DOD each year, for a total of about $6.7 billion 

between fiscal year 1994 and 2001. GAO also found that a substantial 

portion of overpayments was not repaid promptly—in some cases for 

years. As an example, in a 1999 review of 13 contractors, GAO found that it 

took about a year, on average, before overpayments of $56.2 million were 

refunded to DOD. The time taken for repayment ranged from 2 weeks to 

nearly 6 years.

While DOD has a number of initiatives underway to address its payment 

problems, it will be some time before the problems are resolved. Until 

then, DOD contractors will continue receiving a sizable amount of cash 

beyond what is intended to finance and pay for the goods and services DOD 

is purchasing. In effect, such overpayments provide an interest-free loan to 

contractors.

In December 2001, in response to GAO’s work, the Federal Acquisition 

Regulation (FAR) was revised to require contractors receiving 

overpayments on invoice payments to notify the government and seek 

instructions for disposing of the overpayment. However, the revision did

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunctions Multiple

Theme Improve efficiency
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not address overpayments stemming from financing payments7—although 

GAO found that most overpayments involve contracts with financing 

payments. Subsequently, in October 2003, the Civilian Agency Acquisition 

Council and the Defense Acquisition Regulations Council revised the FAR 

to require contractors to notify the government when they received 

overpayments stemming from either invoice or financing payments on 

commercial item and non-commercial item contracts. In turn, contracting 

officers, in coordination with the cognizant payment office, are to promptly 

provide instructions to the contractor regarding the timely disposition of 

the overpayment.

Given the extent of the overpayment problem additional steps could be 

taken to create incentives for contractors to refund money they have not 

earned. For example, a requirement could be established for contractors to 

pay interest on overpayments at the discretion of DOD on a facts and 

circumstances basis if they do not return the money promptly.

CBO estimates the following revenues with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Financial Management: Status of the Governmentwide Efforts to Address 

Improper Payment Problems. GAO-04-99. Washington, D.C.: October 17, 

2003.

7

Contract payments involve payments for the delivery of goods and services and financing 

payments. Financing payments include (1) progress payments to cover a contractor’s costs 

as they are incurred during the construction of facilities or the production of major weapons 

systems and (2) performance-based payments that are based on the accomplishment of 

particular events or milestones—typically used on production contracts. 

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Increased revenue against the 2004 defense plan

Budget authority 4 4 4 4 4

Outlays 4 4 4 4 4
Appendix III

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Page 43 GAO-04-649 Opportunities for Oversight

DOD Contract Payments: Management Action Needed to Reduce Billions 

in Adjustments to Contract Payment Records. GAO-03-727. Washington, 

D.C.: August 8, 2003.

Major Management Challenges and Program Risks: Department of 

Defense. GAO-03-98. Washington, D.C.: January 2003.

Financial Management: Coordinated Approach Needed to Address the 

Government’s Improper Payments Problems. GAO-02-749. Washington, 

D.C.: August 9, 2002.

DOD Contract Management: Overpayments Continue and Management 

and Accounting Issues Remain. GAO-02-635. Washington, D.C.: May 30, 

2002.

Department of Defense: Status of Achieving Outcomes and Addressing 

Major Management Challenges. GAO-01-783. Washington, D.C.: June 25, 

2001.

Contract Management: Excess Payments and Underpayments Continue 

to Be a Problem at DOD. GAO-01-309. Washington, D.C.: February 22, 2001.

DOD Contract Management: Greater Attention Needed to Identify and 

Recover Overpayments. GAO/NSIAD-99-131. Washington, D.C.: July 19, 

1999.

Recovery Auditing: Reducing Overpayments, Achieving Accountability, 

and the Government Waste Corrections Act of 1999. GAO/T-NSIAD-99-213. 

Washington, D.C.: June 29, 1999.

DOD Procurement: Millions in Contract Payment Errors Not Detected 

and Resolved Promptly. GAO/NSIAD-96-8. Washington, D.C.: October 6, 

1995.

GAO Contact David E. Cooper, (617) 788-0555
Appendix III

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Page 44 GAO-04-649 Opportunities for Oversight

Require DOD Report 

Its Progress in 

Implementing the Debt 

Collection 

Improvement Act of 

1996 (DCIA) 

Department of Defense (DOD) and Internal Revenue Service (IRS) records 

showed that over 27,000 contractors registered in DOD’s Central 

Contractor Registration system owed about $3 billion in unpaid taxes as of 

September 30, 2002. DOD has not fully implemented provisions of the Debt 

Collection Improvement Act of 1996 (DCIA) that would assist IRS in 

levying up to 15 percent of each contract payment to offset a DOD 

contractor’s federal tax debt. We estimate that DOD could have collected 

at least $100 million in fiscal year 2002 had it and IRS fully utilized the levy 

process authorized by the Taxpayer Relief Act of 1997. As of September 

2003, DOD had collected only about $687,000, in part, because DOD 

provides contractor payment information from only 1 of its reported more 

than 20 payment systems to the Treasury Offset Program (TOP).

IRS’s continuing challenges in collecting unpaid federal taxes also 

contributed to the problem. In several of our case study contractors, IRS 

was not pursuing DOD contractors due to resource and workload 

management constraints. For other cases, control breakdowns resulted in 

IRS freezing collection activities for reasons that were no longer 

applicable. For many of our case study contractors, this resulted in 

businesses and individuals continuing to receive federal contract payments 

without making any payments on their unpaid federal taxes.

To improve collection of DOD contractor tax debt, we have recommended 

to DOD that it immediately provide its contractor payment information to 

TOP and to IRS to use the levy program as one of the first steps in the 

collection process. Until such time as DOD is able to demonstrate that it is 

meeting its responsibilities under DCIA, including providing payment 

information to TOP, and to facilitate action by the Department, Congress 

may wish to consider requiring that DOD report periodically to Congress 

on its progress in implementing DCIA for each of its contract and vendor 

payment systems. This report should include details of actual collections 

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunctions 051/Department of Defense—Military

Theme Improve efficiency
Appendix III

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by system and in total for all contract and vendor payment systems during 

the reporting period.

We believe that DOD’s reporting of its progress in implementing DCIA to 

Congress is necessary to facilitate oversight since DOD, until recently, had 

taken little action to implement the offset provisions of DCIA since its 

passage almost 8 years ago. We believe that Congress may wish to consider 

such oversight as the federal government is missing opportunities to collect 

hundreds of millions of dollars in unpaid taxes owed by DOD contractors. 

Although CBO agrees that the option may result in savings, it could not 

develop a savings estimate for this option.

Related GAO Product Financial Management: Some DOD Contractors Abuse the Federal Tax 

System with Little Consequence. GAO-04-95. Washington, D.C.: February 

12, 2004.

GAO Contact Gregory Kutz, (202) 512-9505
Appendix III

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Page 46 GAO-04-649 Opportunities for Oversight

Improve the 

Administration of 

Defense Health Care

Each of the three military departments (Army, Navy, and Air Force) 

operates its own health care system, providing medical care to active duty 

personnel, their dependents, retirees, and survivors of military personnel. 

To a large extent, these separate, costly systems perform many of the same 

administrative, management, and operational functions.

Numerous studies since 1949, with the most recent completed in 2001, have 

reviewed whether a central entity should be created within the Department 

of Defense (DOD) for the centralized management and administration of 

the three systems. Most of these studies encouraged some form of 

organizational consolidation. A DOD health agency would consolidate the 

three military medical systems into one centrally-managed system, 

eliminating duplicate administrative, management, and operational 

functions. No specific budget estimate can be developed until numerous 

variables, such as the extent of consolidation and the impact on command 

and support structures, are determined.

Although CBO agreed that improving the administration of DOD health 

care had the potential to create savings, it could not develop a savings 

estimate without a specific legislative proposal. 

Related GAO Products Defense Health Care: TRICARE Resource Sharing Program Failing to 

Achieve Expected Savings. GAO/HEHS-97-130. Washington, D.C.: August 

22, 1997.

Defense Health Care: Actions Under Way to Address Many TRICARE 

Contract Change Order Problems. GAO/HEHS-97-141. Washington, D.C.: 

July 14, 1997.

Primary agency Department of Defense 

Account Defense Health Program (97-0130)

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Theme Improve efficiency
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TRICARE Administrative Prices in the Northwest Region May Be Too 

High. GAO/HEHS-97-149R. Washington, D.C.: June 24, 1997.

Defense Health Care: New Managed Care Plan Progressing, but Cost and 

Performance Issues Remain. GAO/HEHS-96-128. Washington, D.C.: June 

14, 1996.

Defense Health Care: Despite TRICARE Procurement Improvements, 

Problems Remain. GAO/HEHS-95-142. Washington, D.C.: August 3, 1995.

Defense Health Care: DOD’s Managed Care Program Continues to Face 

Challenges. GAO/T-HEHS-95-117. Washington, D.C.: March 28, 1995.

Defense Health Care: Issues and Challenges Confronting Military 

Medicine. GAO/HEHS-95-104. Washington, D.C.: March 22, 1995.

GAO Contact Marcia Crosse, (202) 512-7114
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 48 GAO-04-649 Opportunities for Oversight

Seek Additional 

Opportunities for VA 

and DOD to Increase 

Joint Activities to 

Enhance Services to 

Beneficiaries and 

Reduce Costs

Together, the Department of Veterans Affairs (VA) and the Department of 

Defense (DOD) provide health care services to about 12 million 

beneficiaries at a cost of more than $50 billion annually. To promote more 

cost-effective use of these health care resources and more efficient delivery 

of care, in 1982 the Congress passed the VA and DOD Health Resources 

Sharing and Emergency Operations Act. Specifically, the act authorizes VA 

medical centers (VAMC) and military treatment facilities (MTF) to become 

partners and enter into sharing agreements to buy, sell, and barter medical 

and support services.

VA and DOD continue to be hampered by long-standing barriers, including 

inconsistent reimbursement and budgeting policies and burdensome 

agreement approval processes. These long-standing barriers present 

challenges for future collaboration and cost efficiencies. Although VA and 

DOD have taken some actions to address these barriers and seek more 

opportunities to maximize resources, challenges still remain. In a February 

2002 staff report to the House Committee on Veterans Affairs, new 

opportunities for enhancing sharing authority between the VA and DOD 

were discussed and legislation recommended to achieve more VA and DOD 

resource sharing. Further, in May 2003, the President’s Task Force to 

Improve Health Care Delivery For Our Nation’s Veterans submitted its final 

report, which included a series of recommendations to remove barriers and 

improve collaboration between VA and DOD. It is too early to determine 

what impact the findings and recommendations of the Presidential Task 

Force will have on joint activities between VA and DOD.

VA and DOD sharing partners generally believe the sharing program yielded 

benefits in both dollar savings and qualitative gains. Recognizing joint 

purchasing as an area where efficiencies could be achieved, in June 1999, 

VA and DOD signed a memorandum of agreement to combine their buying 

Primary agencies Department of Defense

Department of Veterans Affairs

Accounts Multiple

Spending type Discretionary

Budget subfunctions Multiple

Theme Improve efficiency
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power and eliminate contracting redundancies for certain items, including 

pharmaceuticals and medical and surgical supplies. In 2001, we reported 

that VA and DOD saved over $170 million annually by jointly procuring 

pharmaceuticals. However, as we testified in June 2002, VA and DOD had 

not awarded joint contracts for medical and surgical supplies, as 

envisioned by their memorandum of agreement. In fiscal year 2001, VA 

spent about $500 million and DOD spent about $240 million for medical and 

surgical supplies. Our analysis of about 100 identical medical and surgical 

items that VA and DOD now contract for separately indicates that jointly 

purchasing these items will yield additional savings, although we were 

unable to quantify the full potential. For example, in fiscal year 2001, if VA 

had collaborated with DOD and obtained a discounted price from one of 

DOD’s regions for needle and syringe disposal containers, VA could have 

saved tens of thousands of dollars on this one item alone. Similarly, DOD 

could have realized additional savings if it had obtained VA’s lower national 

contract price on one type of intravenous tubing. 

While it is difficult to quantify the potential savings that joint contracting 

and other shared approaches could yield, as we reported in 2002, these 

savings could be meaningful given that VA’s and DOD’s separate 

approaches to procuring surgical and medical supplies have yielded an 

estimated $19 million annually in savings. However, much needs to be 

done to take advantage of additional savings opportunities. At this point, 

neither department has accurate, reliable, and comprehensive procurement 

information—a basic requirement for identifying potential medical and 

surgical items to standardize. Furthermore, because DOD has opted to 

follow a regional rather than a national approach to standardization, 

opportunities for national joint procurement will be more difficult to 

achieve.

Other types of potential sharing exist to maximize each system’s capacities 

and result in the most effective delivery of health care. For example, 

having DOD use VA’s consolidated mail outpatient pharmacies could yield 

additional significant savings. VA and DOD need to continue to work 

together to determine an appropriate course of action to ensure that 

resource-sharing opportunities are realized to the maximum extent 

possible. 

CBO was not able to determine the budgetary effect of this option.
Appendix III

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Related GAO Products VA and Defense Health Care: Potential Exists for Savings through Joint 

Purchasing of Medical and Surgical Supplies. GAO-02-872T. Washington, 

D.C.: June 26, 2002.

DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly 

Buying and Mailing Out Drugs. GAO-01-588. Washington, D.C.: May 25, 

2001.

DOD and VA Health Care: Jointly Buying and Mailing Out 

Pharmaceuticals Could Save Millions of Dollars. GAO/T-HEHS-00-121. 

Washington, D.C.: May 25, 2000.

VA and Defense Health Care: Rethinking of Resource Sharing Strategies 

Is Needed. GAO/T-HEHS-00-117. Washington, D.C.: May 17, 2000.

VA and Defense Health Care: Evolving Systems Require Rethinking of 

Resource Sharing Strategies. GAO/HEHS-00-52. Washington, D.C.: May 17, 

2000.

GAO Contact Cynthia A. Bascetta, (202) 512-7101
Appendix III

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150 International 

Affairs

Eliminate U.S. Contributions to Administrative Costs in Rogue States

Streamline U.S. Overseas Presence

Reduce International Broadcasting Overlap

Reduce or Eliminate Eximbank Subsidies
Appendix III

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Eliminate U.S. 

Contributions to 

Administrative Costs in 

Rogue States

International organizations, such as the U.N. Development Program, fund 

projects in countries that are legislatively prohibited from receiving U.S. 

funding under section 307 of the Foreign Assistance Act of 1961, as 

amended. The countries falling under section 307, known as rogue states, 

have varied over time but have included Burma, Cuba, Iran, Libya, and 

Syria. To comply with the legislation, the State Department withholds from 

its voluntary contributions to international organizations the U.S. share of 

funding for projects in these countries.

However, the department does not withhold administrative expenditures 

associated with the operation of field offices in these countries. 

Consequently, a portion of the U.S. contribution still supports projects in 

states prohibited from receiving U.S. funds. We did not attempt to 

calculate the total amount that the United States contributes to all 

international organizations for administrative expenses in rogue states.

The State Department has indicated that it would not, as a matter of policy, 

withhold U.S. contributions to U.N. organizations for administrative 

expenses in these countries. The department believes the legislative 

restriction invites politicization and contradicts the principle of 

universality for participating in U.N. organizations.

Savings could be achieved if the State Department were to include field 

office administrative costs when calculating the amount of U.S. 

withholdings for all international organizations that are subject to section 

307 of the Foreign Assistance Act of 1961.

Primary agency Department of State

Account Contributions to International Organizations 

(19-1126)

Spending type Discretionary

Budget subfunction 151/International development and 

humanitarian assistance

Theme Reassess objectives
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CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

a

Less than $500,000.

Related GAO Products Multilateral Organizations: U.S. Contributions to International 

Organizations for Fiscal Years 1993-95. GAO/NSIAD-97-42. Washington, 

D.C.: May 1, 1997.

International Organizations: U.S. Participation in the United Nations 

Development Program. GAO/NSIAD-97-8. Washington, D.C.: April 17, 1997.

GAO Contacts Joseph Christoff, (202) 512-8979

Tet Miyabara, (202) 512-8974

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the 2004 funding level

Budget authority 0 0 0 0 0

Outlays a a a aa
Appendix III

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Streamline U.S. 

Overseas Presence

The U.S. overseas presence consists of more than 90,000 people (including 

dependents) at more than 260 overseas posts. The workforce at these 

posts has been estimated to comprise as many as 60,000 personnel 

representing over 30 U.S. agencies. The State Department employs about a 

third of the U.S. overseas workforce, and its embassies and consulates 

have become bases for the operations of agencies involved in hundreds of 

activities. U.S. direct-hire staffing levels have increased over the years, 

most notably in non-foreign affairs agencies.

The costs of overseas operations and related security requirements are 

directly linked to the size of the overseas workforce. Reducing the number 

of employees at posts where U.S. strategic interests are lower priority, 

consolidating functions, establishing regional centers, or relocating 

personnel to the United States could significantly reduce the costs of 

overseas operations. The average annual cost of stationing an American 

(and dependents) overseas varies by location but can amount to several 

hundred thousand dollars (not including salary) and has been estimated at 

about twice the average cost for Washington-based staff. Reducing the 

number of personnel overseas also could substantially enhance the safety 

of Americans and other U.S. employees, lower the costly security demands 

placed on the State Department, and help control new embassy 

construction costs. (The State Department has embarked on a $16 billion 

program to build modern, safe, and secure diplomatic facilities.)

In late 1999, the Overseas Presence Advisory Panel concluded that 

substantial monetary savings and reductions in security vulnerabilities 

could be achieved through streamlining staffing at overseas posts. Because 

of the high cost of stationing personnel and their families overseas, The 

President’s Management Agenda identified rightsizing of embassies and 

consulates as a management priority. One administration goal is to develop 

accurate staffing projections for new overseas construction. OMB is 

Primary agency Department of State

Accounts Multiple

Spending type Discretionary

Budget subfunction Multiple

Theme Improve efficiency
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leading an interagency effort to develop a cost-sharing mechanism for 

funding embassy construction that would provide more discipline for 

determining overseas staffing needs and encourage agencies to scrutinize 

their overseas staffing more closely.

We have encouraged actions to reevaluate overseas staffing requirements 

and levels since the mid-1990s. In 2002, we developed a rightsizing 

framework that facilitates basing overseas staffing decisions on a full 

consideration of cost, security, and mission factors. In 2003, we reported 

that staffing projections for new embassy compounds are developed 

without a systematic approach or comprehensive rightsizing analysis. The 

State Department gave agencies little guidance on factors to consider in 

developing staffing projections, and agencies consequently did not take 

consistent or systematic approaches to determining long-term staffing 

needs. Limited documentation of embassy staffing projection exercises 

further complicated the process. Additionally, the State Department did 

not consistently vet overseas posts’ staffing projections with agencies’ 

headquarters.

In 2003, we also reported on the administration’s plans for implementing 

cost-sharing arrangements, including proposals that would require 

agencies to pay rent or a construction surcharge based on their worldwide 

overseas staffing levels. The Overseas Presence Advisory Panel had 

reported that tenant agencies did not share overseas facility costs, 

particularly for capital improvements and maintenance. The panel 

recommended charging tenant agencies rent for space in overseas 

facilities, just as the General Services Administration would charge 

agencies for use of domestic office space. In 2003, we reported that a 

number of issues needed to be resolved before effective cost-sharing 

mechanisms could be implemented, such as how the mechanism would be 

structured and how charges would be calculated. Additionally, we 

reported that some agencies were reluctant to assume costs that the State 

Department had previously paid.

Since our 2003 report, the State Department and OMB have developed a 

cost-sharing mechanism. Starting in fiscal year 2005, all agencies with staff 

overseas will be required to pay a portion of the cost of State’s embassy 

construction program. In March 2004, we started a review of the 

development and implementation of this new cost-sharing mechanism.

Congress could consider a range of options for streamlining staffing at 

overseas posts, such as mandating rightsizing requirements or across-the-
Appendix III

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board cuts for overseas staffing. CBO estimates that the following savings 

could be achieved for every 1 percent reduction in overseas staffing.

Five-Year Savings

Source: Congressional Budget Office.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Overseas Presence: Rightsizing Is Key to Considering Relocation of 

Regional Staff to New Frankfurt Center. GAO-03-1061. Washington, D.C.: 

September 2, 2003.

Embassy Construction: Process for Determining Staffing Requirements 

Needs Improvement. GAO-03-411. Washington, D.C.: April 7, 2003.

Overseas Presence: Rightsizing Framework Can Be Applied at U.S. 

Diplomatic Posts in Developing Countries. GAO-03-396. Washington, D.C.: 

April 7, 2003.

Overseas Presence: Systematic Processes Needed to Rightsize Posts and 

Guide Embassy Construction. GAO-03-582T. Washington, D.C.: April 7, 

2003.

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Relocate overseas staffing domestically by 1 percent

Change from the 2004 funding level

Budget authority 7 13 20 26 33

Outlays 5 11 18 24 31

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Eliminate overseas staffing by 1 percent

Savings from the 2004 baseline

Budget authority 12 23 35 47 59

Outlays 9 20 32 43 55
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Overseas Presence: Conditions of Overseas Diplomatic Facilities. GAO03-557T. Washington, D.C.: March 20, 2003.

Overseas Presence: Framework for Assessing Embassy Staff Levels Can 

Support Rightsizing Efforts. GAO-02-780. Washington, D.C.: July 26, 2002.

GAO Contacts Jess T. Ford, (202) 512-4268

John Brummet, (202) 512-5260
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Reduce International 

Broadcasting Overlap

The Broadcasting Board of Governors oversees 5 broadcast entities that 

provide a variety of news and information programming to more than 125 

markets worldwide. Each broadcast entity is responsible for a collection 

of language services that produce program content.

• The Voice of America provides news and the U.S. position on various 

foreign policy matters to a global audience;

• Radio Free Europe/Radio Liberty provides entertainment and regional 

and local news to countries in Central, Eastern, and Southeastern 

Europe; Russia; the Caucasus; and Central and Southwestern Asia;

• The Middle East Television Network provides entertainment and 

regional and local news to countries throughout the Middle East;8

 and

• Radio Free Asia and Radio/TV Marti provide regional and local news to 

Asia and Cuba, respectively.

In July 2003, we reported that there was about a 55 percent overlap 

between the Voice of America and the other broadcast entities9

 that was 

intended to allow them to achieve their distinct missions by offering

Primary agency Broadcasting Board of Governors

Accounts Multiple

Spending type Discretionary

Budget subfunction 154/Foreign information and exchange 

activities

Theme Reassess objectives

8

 The Middle East Television Network consists of Radio Sawa and Alhurra, the Broadcasting 

Board of Governors’ new satellite television service.

9

 In 2003, the Board broadcasted in 66 languages through 97 language services.
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separate program content in the same language.10 This overlap among 

language services has been a long-standing issue of concern to the Board 

given evolving broadcast priorities and a desire to maximize the use of 

limited resources. We recommended that the Board develop a vision of its 

target scope-of-operations and more precisely define the appropriate level 

of overlap between Voice of America’s and other broadcast entities’ 

language services.

In response to our recommendation, the board conducted a detailed 

overlap analysis as part of its 2003 language service review. This analysis 

reviewed all overlapping language services in light of several potential 

approaches to managing overlap. The Board’s 2004 program plan to 

Congress proposes the reallocation of $4.9 million in savings generated by 

this analysis. The Board plans to conduct this analysis annually to 

determine if additional opportunities for savings exist. Although it is 

difficult to predict potential future savings, the Board has noted that the 

Voice of America’s worldwide English broadcasts represent a special case 

of overlap that deserves closer scrutiny.11 According to Board records, only 

a very small number of individuals listen to the Voice of America’s 

broadcasts exclusively in English.12 The annual budget for the Voice of 

America’s worldwide English program is about $14.9 million.

CBO was not able to determine the budgetary effect of reducing 

international broadcasting overlap.

Related GAO Products U.S. International Broadcasting: Challenges Facing the Broadcasting 

Board of Governors. GAO-04-627T. Washington, D.C.: April 1, 2004.

10 The Voice of America’s mission is to (1) serve as a consistently reliable and authoritative, 

accurate, objective, and comprehensive news source; (2) represent American society by 

presenting a balanced and comprehensive projection of significant American thought and 

institutions; and (3) present U.S. policies clearly and effectively and also present 

responsible discussions and opinion on these policies. In contrast, the other broadcast 

entities’ mission is to serve as temporary “surrogates” for the local media of countries where 

a free and open press does not exist.

11 These broadcasts are viewed as overlapping because they reach the same target audiences 

as the Board’s local language broadcasts.

12 The Board reported that English broadcasts added on average less than 0.2 percent to the 

Voice of America’s audience.
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U.S. International Broadcasting: Enhanced Measure of Local Media 

Conditions Would Facilitate Decisions to Terminate Language Services. 

GAO-04-374. Washington, D.C.: February 26, 2004.

U.S. Public Diplomacy: State Department and the Broadcasting Board of 

Governors Expand Efforts in the Middle East but Face Significant 

Challenges. GAO-04-435T. Washington, D.C.: February 10, 2004.

U.S. International Broadcasting: New Strategic Approach Focuses on 

Reaching Large Audiences but Lacks Measurable Program Objectives. 

GAO-03-772. Washington, D.C.: July 15, 2003.

U.S. International Broadcasting: Strategic Planning and Performance 

Management System Could Be Improved. GAO/NSIAD-00-222. Washington, 

D.C.: September 27, 2000.

GAO Contacts Jess T. Ford, (202) 512-4268

Diana Glod, (202) 512-8945
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Reduce or Eliminate 

Eximbank Subsidies

The Export-Import Bank of the United States (Eximbank) is an 

independent federal agency that assists in financing the export of U.S. 

goods and services to international markets. Eximbank is intended to 

absorb risks that the private sector is unable or unwilling to assume and 

also to help level the playing field for U.S. exporters by matching the 

financing that foreign governments provide to their exporters. Eximbank 

offers subsidized direct loans, guarantees of private loans, and export 

credit insurance; its congressional mandate is to supplement (but not 

compete with) private financing. Eximbank operates under a renewable 

charter that has been reauthorized through September 30, 2006.13 The 

President’s fiscal year 2005 budget requests $125.7 million for Eximbank 

subsidies and an additional $73.2 million for administrative expenses.14

Eximbank programs require substantial levels of taxpayer support. Our 

work has identified two broad options that would allow Eximbank to 

reduce its subsidy costs and operate with reduced federal funding while 

remaining competitive with foreign export credit agencies. First, 

Eximbank could raise its loan risk exposure and insurance fees15 to the 

Primary agency Export-Import Bank

Accounts Export-Import Bank Loans Program 

Account (83-0100)

Spending type Discretionary

Budget subfunction 155/International financial programs

Theme Redefine beneficiaries

13 The Export-Import Bank Act of 1945, as amended.

14 Appropriations for subsidies totaled about $2.1 billion for fiscal years 2001-2003. No funds 

were requested for subsidies in fiscal year 2004 because Eximbank had sufficient 

unobligated balances from prior years for its lending operations.

15 Eximbank charges exporters risk exposure fees for its loan and loan guarantee programs 

and insurance premiums for its insurance programs. These fees (1) are intended to 

compensate Eximbank for the risk it assumes when supporting a loan, guarantee, or 

insurance transaction; (2) are payable as loans are disbursed or may be financed as part of 

the transactions; and (3) should not be confused with Eximbank’s application processing 

fees or commitment fees charged on the undisbursed portion of loans.
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mid-range of those charged by foreign export credit agencies. Currently its 

fees are as low as, or lower than, about 75 percent of those charged by 

other major export credit agencies. However, Eximbank officials have 

expressed concerns that raising fees could affect U.S. export 

competitiveness and need to be considered in the broader context of 

international efforts to reduce government export finance subsidies. 

Second, Eximbank could reduce program risks by capping the maximum 

allowable subsidies offered, limiting program availability in high-risk 

markets, or lowering loan risk protection.16 Eximbank provides financing in 

a greater number of high-risk markets than other major export credit 

agencies. Although financing commitments for high-risk markets represent 

a relatively small share of Eximbank’s total financing commitments—about 

15 percent of total commitments over the period from 1999 to 2003—these 

markets absorb a relatively large share of its credit subsidy costs and, 

under Eximbank’s revised subsidy estimates, the share absorbed by highrisk markets has increased.17

CBO estimates that providing only short-term coverage in high-risk 

markets could produce substantial subsidy savings relative to the 

President’s request.

Five-Year Savings

Source: Congressional Budget Office.

16 Eximbank provides 100 percent unconditional political and commercial risk protection on 

most of the medium-and long-term coverage it issues. In contrast, similar European export 

credit agencies generally require exporters and banks to assume a portion of the risks 

(usually 5-10 percent) associated with such support. Although Eximbank and its 

competitors generally offer similar products—direct loans, insurance and guarantees—only 

Eximbank offers all three products.

17 Some borrowers in high-risk markets miss payments or default on entire loans. Eximbank 

covers these losses, resulting in subsidy costs to the federal government.

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Limit Eximbank Lending in High-Risk Markets

Savings from the President’s request

Budget authority 126 314 220 220 220

Outlays 49 138 171 196 204
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Another option for achieving savings would be to consider reducing 

Eximbank’s program budget or eliminating Eximbank altogether.18 In 

recent years, there has been considerable debate about whether Eximbank 

makes a significant contribution to the U.S. economy by promoting exports 

and jobs or unfairly subsidizes large corporations that have adequate 

access to private export financing and insurance. Our past work indicates 

that the economic benefits of Eximbank’s programs are uncertain. 

However, the agency’s programs may help “level the playing field” for U.S. 

exporters by offsetting the subsidies that foreign governments provide to 

their exporters.19

CBO estimates that reducing Eximbank’s program budget by 5 percent20 or 

eliminating Eximbank altogether would result in savings relative to the 

President’s request.

Five-Year Savings

Source: Congressional Budget Office.

18 In recent years, CBO’s budget options reports have included an option to eliminate the 

Eximbank, the Overseas Private Investment Corporation, and the Trade and Development 

Agency. See, for example, Congressional Budget Office, Budget Options (Washington, D.C.: 

March 2003).

19 All major industrialized countries have similar programs.

20 The 5 percent reduction was selected for illustrative purposes.

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Reduce Eximbank’s Program Budget by 5 Percent

Cost Avoidance relative to the President’s Request

Budget authority 18 20 20 20 20

Outlays 1 11 17 18 19
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Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products U.S. Export-Import Bank: Issues Raised by Recent Market Developments 

and Foreign Competition. GAO/T-NSIAD-99-23. Washington, D.C.: October 

7, 1998.

International Affairs Budget: Framework for Assessing Relevance, 

Priority, and Efficiency. GAO/T-NSIAD-98-18. Washington, D.C.: October 

30, 1997.

Export-Import Bank: Key Factors in Considering Eximbank 

Reauthorization. GAO/T-NSIAD-97-215. Washington, D.C.: July 17, 1997.

Export Finance: Federal Efforts to Support Working Capital Needs of 

Small Business. GAO/NSIAD-97-20. Washington, D.C.: February 13, 1997.

Export-Import Bank: Options for Achieving Possible Budget Reductions. 

GAO/NSIAD-97-7. Washington, D.C.: December 20, 1996.

Export Finance: Comparative Analysis of U.S. and European Union 

Export Credit Agencies. GAO/GGD-96-1. Washington, D.C.: October 24, 

1995.

Export Finance: The Role of the U.S. Export-Import Bank.

GAO/GGD-93-39. Washington, D.C.: December 23, 1992.

GAO Contact Loren Yager, (202) 512-4347

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Eliminate Eximbank

Cost Avoidance relative to the President’s request

Budget authority 121 391 394 418 424

Outlays 0 128 275 341 389
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250 General Science, 

Space, and Technology

Continue Oversight of the International Space Station and Related Support 

Systems
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Continue Oversight of 

the International Space 

Station and Related 

Support Systems

Since 1990, the National Aeronautics and Space Administration (NASA) has 

been on GAO’s high-risk list for contract management, in part because the 

agency has failed to implement a modern, fully integrated financial 

management system. The lack of such a system has hampered NASA’s 

ability to oversee contracts, control program costs, and ensure an effective 

human capital strategy, raising serious concerns about NASA’s management 

of its largest and most costly programs, including the space shuttle 

program and the International Space Station (ISS). Although NASA 

implemented the Core Financial module of its Integrated Financial 

Management Program in June 2003, the agency cannot ensure that the 

system routinely provides its program managers with the financial 

information needed to measure program performance and ensure 

accountability. 

The importance of resolving this weakness was recently amplified. In 

January 2004, President Bush announced a new vision for space 

exploration that will provide NASA with increased funding and require the 

agency to examine its current space flight and exploration activities and 

direct them towards new goals. The President’s plan calls for (1) 

completing assembly of the ISS by 2010 with its research focused on the 

long-term effects of space travel on human biology, and retiring the space 

shuttle upon station completion, (2) developing a new multipurpose 

spacecraft—the Crew Exploration Vehicle (CEV)—to carry humans into 

space by 2014, and (3) returning to the moon by 2020 as a precursor for 

missions to Mars and beyond. The plan also calls for the development of 

enabling technologies, such as power generation, propulsion, life support, 

and other systems that can support more distant travels. The President’s 

estimate for the new vision is $12 billion over the next five years, $1 billion 

of which is additional funding.

Primary agency National Aeronautics and Space 

Administration

Accounts Multiple

Spending type Discretionary

Budget subfunction 252/Space flight, research, and supporting 

activities

Theme Reassess objectives
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The Congress is well aware of the challenges NASA faces in developing, 

building, and transporting crew to and from the ISS—challenges that have 

in the past resulted in schedule delays and higher program costs. However, 

the President’s vision offers additional challenges. First, NASA’s own 

Return to Flight Task Group recently reported that it is too soon to predict 

the timing of the next shuttle flight, thus rendering the ISS completion date 

uncertain. Second, the CEV is NASA’s fourth attempt since 1994 to 

modernize its human space transportation system. Finally, NASA will be 

challenged with effectively managing a larger budget and refocused 

programs and contracts. For example, the ISS and shuttle programs must 

undergo changes to align with the new vision, while a relatively new 

program—the nuclear systems initiative—could provide power generation 

and propulsion necessary for journeys to Mars and beyond. 

As NASA returns the shuttle fleet to safe flight and refocuses its programs 

to implement the President’s vision, continued congressional oversight is 

critical to ensure that NASA’s priorities and supporting funding are 

appropriately matched. In addition, continued improvements in the 

Agency’s financial management infrastructure—people, systems and 

processes—must keep pace with anticipated project management 

challenges. 

CBO was not able to determine the budgetary effect of this option.

Related GAO Products Business Modernization: NASA’s Challenges in Managing Its Integrated 

Financial Management Program. GAO-04-255. Washington, D.C.: 

November 21, 2003.

Business Modernization: Disciplined Processes Needed to Better Manage 

NASA’s Integrated Financial Management Program. GAO-04-118. 

Washington, D.C.: November 21, 2003.

NASA: Shuttle Fleet’s Safe Return to Flight Is Key to Space Station 

Progress. GAO-04-201T. Washington, D.C.: October 29, 2003.

Space Station: Impact of the Grounding of the Shuttle Fleet. GAO-03-1107. 

Washington, D.C.: September 12, 2003.

NASA: Major Management Challenges and Program Risks. GAO-03-849T. 

Washington, D.C.: June 12, 2003.
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Business Modernization: Improvements Needed in Management of 

NASA’s Integrated Financial Management Program. GAO-03-507. 

Washington, D.C.: April 30, 2003.

Major Management Challenges and Program Risks: National Aeronautics 

and Space Administration. GAO-03-114. Washington, D.C.: January 1, 

2003.

Relocation of Space Shuttle Major Modification Work. GAO-03-294R. 

Washington, D.C.: December 2, 2002.

Space Transportation: Challenges Facing NASA’s Space Launch 

Initiative. GAO-02-1020. Washington, D.C.: September 17, 2002.

NASA Management Challenges: Human Capital and Other Critical Areas 

Need to be Addressed. GAO-02-945T. Washington, D.C.: July 18, 2002.

Space Station: Actions Under Way to Manage Cost, but Significant 

Challenges Remain. GAO-02-735. Washington, D.C.: July 17, 2002.

NASA: Compliance With Cost Limits Cannot Be Verified. GAO-02-504R. 

Washington, D.C.: April 10, 2002.

GAO Contact Allen Li, (202) 512-4841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 69 GAO-04-649 Opportunities for Oversight

270 Energy Corporatize or Divest Selected Power Marketing Administrations 

Recover Power Marketing Administrations’ Costs 

Increase Nuclear Waste Disposal Fees 

Recover Federal Investment in Successfully Commercialized Technologies 

Improve the Department of Energy’s Management of Its Capital Asset 

Acquisition, Weapons Refurbishment, and Site Cleanup Projects

Reduce the Costs of the Rural Utilities Service’s Electricity Loan Program
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 70 GAO-04-649 Opportunities for Oversight

Corporatize or Divest 

Selected Power 

Marketing 

Administrations

The federal government began to market electricity after the Congress 

authorized the construction of dams and established major water projects, 

primarily in the 1930s to the 1960s. The Department of Energy’s (DOE) 

power marketing administrations (PMA)—Bonneville Power 

Administration, Southeastern Power Administration, Southwestern Power 

Administration, and Western Area Power Administration—market 

primarily wholesale power in 33 states produced at large, multiple-purpose 

water projects. Our March 1998 report identified options that the Congress 

and other policymakers can pursue to address concerns about the role of 

three PMAs—Southeastern, Southwestern, and Western—in emerging 

restructured markets or to manage them in a more business-like fashion. 

Our work has demonstrated that, although federal laws and regulations 

generally require that the PMAs recover the full costs of building, 

operating, and maintaining the federal power plants and transmission 

assets, in some cases federal statutes and DOE’s rules are ambiguous about 

or prohibit the recovery of certain costs. For fiscal years 1992 through 

1996, the federal government incurred a net cost of $1.5 billion from its 

involvement in the electricity-related activities of Southeastern, 

Southwestern, and Western. In addition, appropriated and other debt that 

is recoverable through the PMAs’ power sales totaled about $19.5 billion at 

the end of fiscal year 2002. Furthermore, our work has demonstrated that 

the availability of federal power plants to generate electricity has, in the 

past, been below that of nonfederal plants because federal planning and 

resource allocation decisions do not always ensure that funds are available 

to make repairs when needed.

Our March 1998 report outlined three general options to address the federal 

role in restructuring markets: (1) maintaining the status quo of federal 

ownership and operation of the power generating projects, (2) maintaining 

the federal ownership of these assets but improving how they are operated 

(an example of which is reorganizing the PMAs to operate as federally 

owned corporations), and (3) divesting these assets. The third option 

would eliminate the government’s presence in a commercial activity and, 

Primary agency Department of Energy

Spending type Direct

Theme Reassess objectives
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 71 GAO-04-649 Opportunities for Oversight

depending on a divestiture’s terms and conditions and the price obtained, 

could produce both a net gain and a future stream of tax payments to the 

Treasury. Corporatization or divestitures of government assets have been 

accomplished in the United States and also overseas, and corporatization 

could serve as an interim step toward ultimate divestiture. Our March 1997 

report concluded that divesting the federal hydropower assets would be 

complicated but not impossible. Such a transaction would need to balance 

the multiple purposes of the water project as well as other claims on the 

water.

CBO estimates that divesting the federal hydropower assets for 

Southeastern, Southwestern, and Western would result in budgetary 

savings. The savings assumed that the divestiture would not occur for 2 

years and was based on the net present value of outstanding debt for the 

Southeastern, Southwestern, and Western PMAs.

Five-Year Savings

Source: Congressional Budget Office.

Note: Figures are based on the most recent audited statements of assets and liabilities. 

Five-Year Savings

Source: Congressional Budget Office.

Note: Figures are based on the most recent audited statements of assets and liabilities. The receipt in 

2007 would be an inflow of cash to the government from the sale of PMA assets. The loss of receipts 

after that would be from the loss of the stream of annual receipts received from the sale of electricity.

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Discretionary spending 

Budget authority 0 0 0 233 241

Outlays 0 0 0 230 237

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Direct spending 

Budget authority 0 0 -6,891 537 547

Outlays 0 0 -6,891 537 547
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 72 GAO-04-649 Opportunities for Oversight

Related GAO Products Bonneville Power Administration: Long-Term Fiscal Challenges. GAO03-918R. Washington, D.C.: July 1, 2003.

Budget Issues: Effective Oversight and Budget Discipline Are Essential—

Even in a Time of Surplus. GAO/T-AIMD-00-73. Washington, D.C.: 

February 1, 2000.

Potential Candidates for Congressional Oversight. GAO/OGC-00-3R. 

Washington, D.C.: November 1, 1999.

Federal Power: The Role of the Power Marketing Administrations in a 

Restructured Electricity Industry. GAO/T-RCED/AIMD-99-229. 

Washington, D.C.: June 24, 1999.

Federal Power: PMA Rate Impacts by Service Area. GAO/RCED-99-55. 

Washington, D.C.: January 28, 1999.

Federal Power: Regional Effects of Changes in PMAs’ Rates. GAO/RCED99-15. Washington, D.C.: November 16, 1998.

Power Marketing Administrations: Repayment of Power Costs Needs 

Closer Monitoring. GAO/AIMD-98-164. Washington, D.C.: June 30, 1998.

Federal Power: Options for Selected Power Marketing Administrations’ 

Role in a Changing Electricity Industry. GAO/RCED-98-43. Washington, 

D.C.: March 6, 1998.

Federal Electricity Activities: The Federal Government’s Net Cost and 

Potential for Future Losses. GAO/AIMD-97-110 and 110A. Washington, 

D.C.: September 19, 1997.

Federal Power: Issues Related to the Divestiture of Federal Hydropower 

Resources. GAO/RCED-97-48. Washington, D.C.: March 31, 1997.

Power Marketing Administrations: Cost Recovery, Financing, and 

Comparison to Nonfederal Utilities. GAO/AIMD-96-145. Washington, D.C.: 

September 19, 1996.

Federal Power: Recovery of Federal Investment in Hydropower Facilities 

in the Pick-Sloan Program. GAO/T-RCED-96-142. Washington, D.C.: May 2, 

1996.
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 73 GAO-04-649 Opportunities for Oversight

GAO Contacts Bob Robinson, (202) 512-3841

Jim Wells, (202) 512-3841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 74 GAO-04-649 Opportunities for Oversight

Recover Power 

Marketing 

Administrations’ Costs

Four of the Department of Energy’s (DOE) power marketing 

administrations (PMA)—Bonneville Power Administration, Southeastern 

Power Administration, Southwestern Power Administration, and Western 

Area Power Administration—market primarily wholesale power in 33 

states produced at large, multiple-purpose water projects. Except for 

Bonneville, these PMAs receive annual appropriations to cover operating 

and maintenance (O&M) expenses and, if applicable, the capital investment 

in transmission assets.21 Federal law requires the PMAs to repay these 

appropriations as well as the power-related O&M and the capital 

appropriations expended by the operating agencies generating the power.

In part because the PMAs sell power generated almost exclusively from 

hydropower and are not required to earn a profit or pay taxes, they are 

generally able to sell power more cheaply than other providers. The 

Congress has the option of requiring the PMAs to sell their power at market 

rates to better ensure the full recovery of the appropriated and other debt 

that is recoverable through the PMAs’ power sales. This debt totaled about 

$19.5 billion at the end of fiscal year 2002. This option would likely also 

lead to more efficient management of the taxpayers’ assets.

If the PMAs were authorized to charge market rates for power in 

conjunction with federal restructuring legislation, some preference 

customers who now purchase power from the PMAs at rates that are less 

than those available from other sources would see their rates increase. 

However, we have reported that slightly more than two-thirds of the 

preference customers, which are located in varying portions of 29 states, 

that purchased power directly from Southeastern, Southwestern, and 

Primary agency Department of Energy

Spending type Direct

Theme Redefine beneficiaries

21In 1974, the Congress stopped providing Bonneville with annual appropriations and 

instead provided it with a revolving fund maintained by the Treasury; however, Bonneville 

remains responsible for repaying its debt prior to 1974 and debt stemming from 

appropriations expended by the operating agencies on power-related expenses.
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 75 GAO-04-649 Opportunities for Oversight

Western would experience small or no rate increases—increases of onehalf cent per kilowatt hour or less—if those PMAs charged market rates.

Although CBO agrees that the option will result in savings, it could not 

develop a savings estimate.

Related GAO Products Congressional Oversight: Opportunities to Address Risks, Reduce Costs, 

and Improve Performance. GAO/T-AIMD-00-96. Washington, D.C.: 

February 17, 2000.

Federal Power: The Role of the Power Marketing Administrations in a 

Restructured Electricity Industry. GAO/T-RCED/AIMD-99-229. 

Washington, D.C.: June 24, 1999.

Federal Power: PMA Rate Impacts, by Service Area. GAO/RCED-99-55. 

Washington, D.C.: January 28, 1999.

Federal Power: Regional Effects of Changes in PMAs’ Rates. GAO/RCED99-15. Washington, D.C.: November 16, 1998.

Power Marketing Administrations: Repayment of Power Costs Needs 

Closer Monitoring. GAO/AIMD-98-164. Washington, D.C.: June 30, 1998.

Federal Power: Options for Selected Power Marketing Administrations’ 

Role in a Changing Electricity Industry. GAO/RCED-98-43. Washington, 

D.C.: March 6, 1998.

Federal Electricity Activities: The Federal Government’s Net Cost and 

Potential for Future Losses. GAO/AIMD-97-110 and 110A. Washington, 

D.C.: September 19, 1997.

Federal Power: Issues Related to the Divestiture of Federal Hydropower 

Resources. GAO/RCED-97-48. Washington, D.C.: March 31, 1997.

Power Marketing Administrations: Cost Recovery, Financing, and 

Comparison to Nonfederal Utilities. GAO/AIMD-96-145. Washington, D.C.: 

September 19, 1996.

Federal Power: Outages Reduce the Reliability of Hydroelectric Power 

Plants in the Southeast. GAO/T-RCED-96-180. Washington, D.C.: July 25, 

1996.
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 76 GAO-04-649 Opportunities for Oversight

Federal Power: Recovery of Federal Investment in Hydropower Facilities 

in the Pick-Sloan Program. GAO/T-RCED-96-142. Washington, D.C.: May 2, 

1996.

Federal Electric Power: Operating and Financial Status of DOE’s Power 

Marketing Administrations. GAO/RCED/AIMD-96-9FS. Washington, D.C.: 

October 13, 1995.

GAO Contacts Bob Robinson, (202) 512-3841

Jim Wells, (202) 512-3841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 77 GAO-04-649 Opportunities for Oversight

Increase Nuclear Waste 

Disposal Fees

Utilities pay a fee to the Nuclear Waste Fund to finance the development of 

storage and permanent disposal facilities for high-level radioactive wastes. 

The amount of this fee has not changed since 1983, making the fund 

susceptible to future budget shortfalls. The Nuclear Waste Policy Act 

requires DOE to annually assess the adequacy of the fee. Despite this 

requirement, DOE has not reported on the fee adequacy since May 2001. 

Accordingly, utilities continue to pay a fee of 0.1 cent per kilowatt-hour, 

without any adjustment for inflation. To help ensure that sufficient 

revenues are collected to cover increases in cost estimates caused by price 

inflation, we recommend that the Congress amend the Nuclear Waste 

Policy Act of 1982 to direct the Secretary of Energy to automatically adjust 

for inflation the nuclear waste disposal fee that utilities pay into the 

Nuclear Waste Fund.

Five-Year Savings

Source: Congressional Budget Office.

Note: Since this is a mandatory account, the increase in receipts is a negative number. However, the 

proposal would end up bringing in more receipts to the Treasury.

Related GAO Products Status of Actions to Improve DOE User-Fee Assessments. GAO/RCED-92-

165. Washington, D.C.: June 10, 1992.

Changes Needed in DOE User-Fee Assessments. GAO/T-RCED-91-52. 

Washington, D.C.: May 8, 1991.

Changes Needed in DOE User-Fee Assessments to Avoid Funding 

Shortfall. GAO/RCED-90-65. Washington, D.C.: June 7, 1990.

Primary agency Department of Energy

Spending type Direct

Theme Redefine beneficiaries

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Direct spending -8 -18 -32 -47 -63
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 78 GAO-04-649 Opportunities for Oversight

GAO Contacts Bob Robinson, (202) 512-3841 

Robin Nazzaro, (202) 512-3841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 79 GAO-04-649 Opportunities for Oversight

Recover Federal 

Investment in 

Successfully 

Commercialized 

Technologies

The Department of Energy (DOE) and the private sector are involved in 

hundreds of cost-shared projects aimed at developing a broad spectrum of 

cost-effective, energy-efficiency technologies that protect the environment, 

support the nation’s economic competitiveness, and promote the increased 

use of oil, gas, coal, nuclear, and renewable energy resources. We 

identified four DOE programs that require industry repayment if the 

technologies are ultimately commercialized. The offices in which we 

focused most of our work planned to devote about $8 billion in federal 

funds to cost-shared projects over their lifetime, of which about $2.5 billion 

would be subject to repayment. However, we found that DOE generally has 

not required repayment of its investment in technologies that are 

successfully commercialized. Our June 1996 report discussed the 

advantages and disadvantages of having a repayment policy and pointed 

out that many of the disadvantages can be mitigated by structuring a 

flexible repayment requirement with the disadvantages in mind. It also 

discussed the types of programs and projects that would be the most 

appropriate or suitable for repayment of the federal investment.

Because opportunities currently exist for substantial repayment in some of 

DOE’s programs, one option for the Congress is to require repayment under 

a flexible policy that would allow the government to share in the benefits of 

successfully commercialized technologies, which could result in significant 

cost savings. However, repayment provisions would only apply to future 

technology development projects not yet negotiated with industry.

CBO agrees that the option may result in savings, but it could not develop a 

savings estimate.

Related GAO Products Fossil Fuel R&D: Lessons Learned in the Clean Coal Technology 

Program. GAO-01-854T. Washington, D.C.: June 12, 2001.

Primary agency Department of Energy

Accounts Multiple

Spending type Discretionary

Budget subfunctions Multiple

Theme Redefine beneficiaries
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 80 GAO-04-649 Opportunities for Oversight

Clean Coal Technology: Status of Projects and Sales of Demonstrated 

Technology. GAO/RCED-00-86R. Washington, D.C.: March 9, 2000.

Energy Research: Opportunities Exist to Recover Federal Investment in 

Technology Development Projects. GAO/RCED-96-141. Washington, D.C.: 

June 26, 1996.

GAO Contacts Bob Robinson, (202) 512-3841

Jim Wells, (202) 512-3841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 81 GAO-04-649 Opportunities for Oversight

Improve the 

Department of 

Energy’s Management 

of Its Capital Asset 

Acquisition, Weapons 

Refurbishment, and 

Site Cleanup Projects 

As of January 2002, the Department of Energy (DOE) had at least 42 

ongoing projects estimated to cost more than $100 million at its national 

laboratories, weapons production facilities, and other locations. These 

projects included the construction of new specialized facilities, such as the 

National Ignition Facility at Lawrence Livermore National Laboratory; the 

refurbishment of nuclear weapons; and the cleanup of nuclear waste at 

active and closed DOE facilities. Our September 2002 review of 16 major 

DOE projects found no indication that DOE or its contractors had 

improved their management performance as compared with our 1996 

assessment of management performance. Specifically, we found that the 

estimated cost of 6 of the 16 projects was more than double DOE’s initial 

estimate and that 6 projects had experienced schedule delays of 5 years or 

more.

DOE has taken several steps to improve the way its major projects are 

managed. For example, in 2000 DOE issued new policy, order, and 

guidance on managing and controlling projects, including enhancing the 

project management skills within the department. The DOE Order requires 

detailed project reviews by senior managers at five different decision 

points during the project. In addition, DOE’s Office of Engineering and 

Construction Management set a goal for 2002 that 85 percent of the 

projects it tracks (projects costing more than $5 million) will have less than 

a 10-percent variance in cost and schedule. For 2004, the office’s goal is 

that 90 percent of the projects it tracks will have less than a 10-percent 

variance in cost and schedule.

Even with these project management requirements and controls in place, 

performance problems continue. One reason for continuing problems is 

that DOE is not consistently applying the requirements and controls to all 

of its acquisition, refurbishment, and cleanup projects. For example, some 

projects in DOE’s Office of Science and its National Nuclear Security 

Primary agency Department of Energy

Account Multiple

Spending type Discretionary

Budget subfunction Multiple

Theme Improve efficiency
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 82 GAO-04-649 Opportunities for Oversight

Administration (NNSA) have avoided project validation and other 

requirements. As a result, the cost and schedule estimates may not be 

reliable and the projects may have a greater likelihood to cost more and 

take longer to complete than DOE had estimated.

One option available to the Congress to help minimize cost and schedule 

increases on DOE projects is to require that all DOE projects costing more 

than $5 million, regardless of the responsible DOE program office, (1) 

follow the requirements in DOE’s project management order and (2) be 

validated and approved by DOE’s Office of Engineering and Construction 

Management—or a similar office within NNSA for nuclear weapons 

refurbishment—before construction funding is requested in DOE’s budget 

submission to Congress. 

CBO was not able to determine the budgetary effect of this option.

Related GAO Products Nuclear Weapons: Opportunities Exist to Improve the Budgeting, Cost 

Accounting, and Management Associated with the Stockpile Life 

Extension Program. GAO-03-583. Washington, D.C.: July 28, 2003.

Nuclear Waste: Challenges to Achieving Potential Savings in DOE’s 

High-Level Waste Cleanup Program. GAO-03-593. Washington, D.C.: June 

17, 2003.

Department of Energy: Status of Contract and Project Management 

Reform. GAO-03-570T. Washington, D.C.: March 20, 2003.

Contract Reform: DOE Has Made Progress, but Actions Needed to Ensure 

Initiatives Have Improved Results. GAO-02-798. Washington, D.C.: 

September 13, 2002.

Nuclear Waste: Technical, Schedule, and Cost Uncertainties of the Yucca 

Mountain Repository Project. GAO-02-191. Washington, D.C.: December 

21, 2001.

National Ignition Facility: Management and Oversight Failures Caused 

Major Cost Overruns and Schedule Delays. GAO/RCED-00-271. 

Washington, D.C.: August 8, 2000.

Nuclear Waste Cleanup: DOE’s Paducah Plan Faces Uncertainties and 

Excludes Costly Cleanup Activities. GAO/RCED-00-96. Washington, D.C.: 

April 28, 2000.
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 83 GAO-04-649 Opportunities for Oversight

Department of Energy: Opportunity to Improve Management of Major 

System Acquisitions. GAO/RCED-97-17. Washington, D.C.: November 26, 

1996.

GAO Contacts Bob Robinson, (202) 512-3841

Robin Nazzaro, (202) 512-3841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 84 GAO-04-649 Opportunities for Oversight

Reduce the Costs of 

the Rural Utilities 

Service’s Electricity 

Loan Program

The Rural Utilities Service (RUS), created by the Federal Crop Insurance 

Reform and Department of Agriculture Reorganization Act of 1994 (P.L. 

103-354, Oct. 13, 1994), was established to provide loan funds intended to 

assist in the development of the utility infrastructure in the nation’s rural 

areas. RUS finances the construction, improvement, and repair of 

electrical, telecommunications, and water and waste facility systems 

through direct loans and through repayment guarantees on loans made by 

other lenders. According to the Financial Statements For Fiscal Year 2003 

of Rural Development (the U.S. Department of Agriculture agency 

responsible for administering RUS), RUS loans receivable totaled about 

$40.1 billion as of September 30, 2003. From a financial standpoint, RUS 

has successfully operated the telecommunications loan program, but the 

agency continues to have significant financial problems with the electricity 

loan program. For example, since fiscal year 1992, RUS wrote off the debt 

of 9 electricity loan borrowers totaling more than $4.9 billion.

The Congress may need to consider options to reduce RUS’s vulnerability 

to losses in its electricity program such as (1) establishing loan and 

indebtedness limits, (2) setting the loan repayment guarantee at a level 

below 100 percent, and (3) prohibiting loans to delinquent borrowers or to 

borrowers who have caused the agency to incur loan losses. 

CBO agrees that the option would result in savings, but it could not develop 

a savings estimate.

Related GAO Products Financial Management: Impact of RUS’ Electricity Loan Restructurings. 

GAO/AIMD-00-288. Washington, D.C.: September 29, 2000.

Rural Utilities Service: Status of Electric Loan Portfolio. GAO/AIMD-99-

264R. Washington, D.C.: August 17, 1999.

Primary agency Department of Agriculture

Accounts Multiple 

Spending type Discretionary

Budget subfunction 271/Energy supply

Theme Improve efficiency
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 85 GAO-04-649 Opportunities for Oversight

Rural Water Projects: Federal Assistance Criteria and Potential Benefits 

of the Proposed Lewis and Clark Project. GAO/T-RCED-99-252. 

Washington, D.C.: July 29, 1999.

Rural Water Projects: Identifying Benefits of the Proposed Lewis and 

Clark Project. GAO/RCED-99-115. Washington, D.C.: May 28, 1999.

Rural Water Projects: Federal Assistance Criteria Related to the Fort Peck 

Reservation Rural Water Project. GAO/T-RCED-98-230. Washington, D.C.: 

June 18, 1998.

Rural Utilities Service: Risk Assessment for the Electric Loan Portfolio. 

GAO/T-AIMD-98-123. Washington, D.C.: March 30, 1998.

Rural Utilities Service: Opportunities to Operate Electricity and 

Telecommunications Loan Programs More Effectively. GAO/AIMD-98-42. 

Washington, D.C.: January 21, 1998.

Federal Electricity Activities: The Federal Government’s Net Cost and 

Potential for Future Losses. GAO/AIMD-97-110. Washington, D.C.: 

September 19, 1997.

Rural Development: Financial Condition of the Rural Utilities Service’s 

Electricity Loan Portfolio. GAO/T-RCED-97-198. Washington, D.C.: July 8, 

1997.

Rural Development: Financial Condition of the Rural Utilities Service’s 

Loan Portfolio. GAO/RCED-97-82. Washington, D.C.: April 11, 1997.

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-3841

McCoy Williams, (202) 512-6906
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 86 GAO-04-649 Opportunities for Oversight

300 Natural Resources 

and Environment

Terminate Land-Exchange Programs 

Deny Additional Funding for Commercial Fisheries Buyback Programs

Revise the Mining Law of 1872 

Reexamine Federal Policies for Subsidizing Water for Agriculture and Rural 

Uses 

Reassess Federal Land Management Agencies’ Functions and Programs
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 87 GAO-04-649 Opportunities for Oversight

Terminate LandExchange Programs

The Bureau of Land Management (BLM) and the Forest Service have long 

used land exchanges—trading federal lands for lands that are owned by 

corporations, individuals, or state or local governments—as a tool for 

acquiring nonfederal land and conveying federal land. By law, for an 

exchange to occur, the estimated value of the nonfederal land must be 

within 25 percent of the estimated value of the federal land, the public 

interest must be well served, and certain other exchange requirements 

must be met. Recognizing the importance of land exchanges in 

supplementing the federal funds that were available for purchasing land, 

the Congress, in 1988, passed legislation to facilitate and expedite land 

exchanges. Between fiscal years 1989 and 1999, BLM and the Forest 

Service acquired about 1,500 total square miles of land through land 

exchanges.

Several fundamental issues create significant problems in the use of land 

exchanges. For instance, in 1998, the cognizant inspectors general 

identified exchanges in which lands were inappropriately valued and the 

public interest was not well served. Also, although current law does not 

authorize BLM to retain or use proceeds from selling federal land, BLM 

sold federal land and retained the sales proceeds in escrow accounts. 

Further, BLM did not track these sales proceeds in its financial 

management system. At least some of BLM’s and the Forest Service’s 

continuing problems may reflect inherent underlying difficulties associated 

with exchanging land—rather than buying and selling land for cash. In 

fiscal year 2002, BLM contracted with the Appraisal Foundation to conduct 

a review of the agency’s appraisal organization, policies, and procedures. 

The Appraisal Foundation’s report listed numerous problems with BLM’s 

appraisal process and concluded “violations of law may have occurred.” 

The report contained seven principal recommendations including the 

recommendation that the “previously recommended moratorium on BLM 

Primary agencies Department of the Interior

Department of Agriculture 

Accounts Multiple

Spending type Discretionary

Budget subfunction 302/Conservation and land management

Theme Reassess objectives
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 88 GAO-04-649 Opportunities for Oversight

land exchanges be implemented immediately.” The Foundation performed 

a similar evaluation for the U.S. Department of Agriculture (USDA) Forest 

Service in 2000. That study resulted in a number of recommendations, 

which the Foundation noted, “have been successfully implemented.” In 

most circumstances, cash-based transactions would be simpler and less 

costly.

While both agencies have taken steps to improve their land-exchange 

programs, problems still exist given the inherent difficulties and 

inefficiencies in exchange programs in general. On the basis of these 

difficulties and inefficiencies, the Congress may wish to consider directing 

both agencies to terminate their land-exchange programs. 

CBO could not develop a savings estimate for this option.

Related GAO Products National Park Service: Federal Taxpayers Could Have Benefited More 

From Potomac Yard Land Exchange. GAO-01-292. Washington, D.C.: 

March 15, 2001.

BLM and the Forest Service: Land Exchanges Need to Reflect Appropriate 

Value and Serve the Public Interest. GAO/RCED-00-73. Washington, D.C.: 

June 22, 2000.

GAO Contacts Bob Robinson, (202) 512-3841

Barry Hill, (202) 512-3841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 89 GAO-04-649 Opportunities for Oversight

Deny Additional 

Funding for 

Commercial Fisheries 

Buyback Programs

Fish populations in many commercial fisheries are declining, resulting in a 

growing imbalance between the number of vessels in fishing fleets and the 

number of fish available for harvest. In response to this growing imbalance, 

the federal government provided $140 million from 1994 to 2002 to 

purchase fishing permits, fishing vessels, and related gear from fishermen, 

thereby reducing the capacity of fishermen to harvest fish. Generally, the 

government designed these purchases, called buybacks, to achieve 

multiple goals, such as reducing the capacity to harvest fish, providing 

economic assistance to fishermen, and improving the conservation of fish. 

Coastal states issue permits and develop and enforce regulations for fishing 

in waters that are near their shores. In areas outside state jurisdiction, the 

National Marine Fisheries Service (NMFS) within the Department of 

Commerce is responsible for issuing permits and developing and enforcing 

regulations for harvesting fish. Because excessive fishing capacity 

continues to be a problem in many fisheries, several additional buybacks 

have been proposed and authorized since we last reported on this issue in 

June 2000.

GAO found that buyback programs in three fisheries we evaluated removed 

from 10 to 24 percent of their respective fishing capacities. However, the 

experiences of these three cases demonstrate that the long-term 

effectiveness of buyback programs depends upon whether previously 

inactive fishermen or buyback beneficiaries return to the fishery. For 

example, while 79 boats were sold in the New England buyback, 62 

previously inactive boats have begun catching groundfish since the 

buyback. In addition, several buyback participants purchased boats with 

buyback funds and returned to the fishery. Long-term effectiveness of 

buyback programs may also depend on whether fishermen have incentives 

to increase remaining fishing capacity in a fishery. Importantly, buyback 

programs by themselves do not address the root cause of excess fishing 

Primary agency Department of Commerce

Account Operations, Research, and Facilities 

(13-1450)

Spending type Discretionary

Budget subfunction 306/Other natural resources

Theme Reassess objectives
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 90 GAO-04-649 Opportunities for Oversight

capacity, that being the ongoing incentives fishermen have to invest in 

larger or better equipped fishing vessels in order to catch fish before 

someone else does.

The problems of past buyback programs should be addressed as part of the 

design of any future programs. Given the experiences of buyback 

programs to date—both in terms of their limited effects on reducing fishing 

capacity and in terms of their inability to effectively address the root 

causes of over-fishing—one option the Congress may wish to consider is 

limiting additional funding for proposed programs until these fundamental 

weaknesses are resolved.

CBO agrees that the option may result in savings, but it could not develop a 

savings estimate for this option.

Related GAO Products Commercial Fisheries: Effectiveness of Fishing Buyback Programs Can 

Be Improved. GAO-01-699T. Washington, D.C.: May 10, 2001.

Commercial Fisheries: Entry of Fishermen Limits Benefits of Buyback 

Programs. GAO/RCED-00-120. Washington, D.C.: June 14, 2000.

GAO Contact Anu Mittal, (202) 512-9846
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 91 GAO-04-649 Opportunities for Oversight

Revise the Mining Law 

of 1872

The Mining Law of 1872 allows holders of economically minable claims on 

federal lands to obtain all rights and interests to both the land and the 

hardrock minerals by patenting the claims for $2.50 or $5.00 an acre—

amounts that do not necessarily reflect the market value of such lands 

today. Since 1872, the federal government has patented more than 3 million 

acres of mining claims (an area about the size of Connecticut), and some 

patent holders have reaped huge profits by reselling their lands. 

Furthermore, miners do not pay royalties to the government on hardrock 

minerals they extract from federal lands.

Since we issued our report in 2001, one option that remains available is to 

require the payment of fair market value for a patent, or otherwise modify 

the requirements for patenting. Without a specific definition of fair market 

value or other specific proposals to reform the patenting system, CBO 

cannot estimate savings from this option.

Legislation could also be enacted to impose royalties on hardrock minerals 

extracted from federal lands, such as a 5 percent royalty on net smelter 

returns. CBO estimates below that a 5 percent royalty could increase gross 

receipts, but the estimates do not account for subsequent receipt-sharing, if 

any, with states.

Five-Year Savings

Source: Congressional Budget Office.

Note: Estimates do not account for subsequent receipt-sharing, if any, with states.

Primary agencies Department of the Interior

Department of Agriculture

Spending type Direct

Theme Redefine beneficiaries

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from increased offsetting receipts

Offsetting receipts 6 6 6 6 6
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 92 GAO-04-649 Opportunities for Oversight

Related GAO Products Bureau of Land Management: Improper Charges Made to Mining Law 

Administration Program. GAO-01-491T. Washington, D.C.: March 29, 2001.

Bureau of Land Management: Improper Charges Made to Mining Law 

Administration Program. GAO-01-356. Washington, D.C.: March 8, 2001.

National Park Service: Agency Should Recover Costs of Validity 

Examinations for Mining Claims. GAO/RCED-00-265. Washington, D.C.: 

September 19, 2000.

Review of the Bureau of Land Management’s Administration and Use of 

Mining Maintenance Fees. GAO/AIMD-00-184R. Washington, D.C.: June 2, 

2000.

Mineral Royalties: Royalties in the Western States and in Major MineralProducing Countries. GAO/RCED-93-109. Washington, D.C.: March 29, 

1993.

Natural Resources Management Issues. GAO/OCG-93-17TR. Washington, 

D.C.: December 1992.

Mineral Resources: Value of Hardrock Minerals Extracted From and 

Remaining on Federal Lands. GAO/RCED-92-192. Washington, D.C.: 

August 24, 1992.

Federal Land Management: The Mining Law of 1872 Needs Revision. 

GAO/RCED-89-72. Washington, D.C.: March 10, 1989.

GAO Contacts Bob Robinson, (202) 512-3841

Barry Hill, (202) 512-3841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 93 GAO-04-649 Opportunities for Oversight

Reexamine Federal 

Policies for Subsidizing 

Water for Agriculture 

and Rural Uses

Federal water programs to promote efficient use of finite water resources 

for the nation’s agricultural and rural water systems have been used to 

provide higher subsidies than Congress may have intended. To improve 

the effectiveness and efficiency of federal water programs, the Congress 

could consider several options to reduce duplication or inconsistencies. 

Although we first raised this issue in 1990, these options remain valid.

The Congress could, for example, consider collecting the full costs of 

federal water for large farms. The Reclamation Reform Act of 1982 limits 

to 960 the maximum number of owned or leased acres that individuals or 

legal entities (such as partnerships or corporations) can irrigate with 

federal water at rates that exclude interest on the government's investment 

in the irrigation component of its water resource projects. However, the 

act does not prohibit multiple landholdings from being operated 

collectively as one farm while individually qualifying for federally 

subsidized water. Some farmers have reorganized large farming operations 

into multiple, smaller land holdings to be eligible to receive federally 

subsidized irrigation water. As a result, the flow of federally subsidized 

water to large farms has not been stopped, and the government is not 

receiving the revenues to which it would have been entitled if the multiple 

landholdings were considered collectively as one farm subject to the act's 

960 acre limit.

Another option would be for the Congress to consider restructuring the 

subsidies for crops produced with federally subsidized water. According to 

the Department of the Interior, a portion of the acreage served by the 

Bureau of Reclamation was used to produce crops that were also eligible 

for USDA commodity subsidies. Farmers received the water subsidy for 

using irrigated water from Interior as well as USDA subsidies per crop 

production. 

CBO was not able to develop a savings estimate without a specific 

proposal.

Primary agency Department of the Interior 

Spending type Direct

Theme Redefine beneficiaries
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 94 GAO-04-649 Opportunities for Oversight

Related GAO Products Freshwater Supply: States’ View of How Federal Agencies Could Help 

Them Meet the Challenges of Expected Shortages. GAO-03-514. 

Washington, D.C.: July 9, 2003.

Bureau of Reclamation: Water Marketing Activities and Costs at the 

Central Valley Project. GAO-01-553. Washington, D.C.: March 4, 2001.

Bureau of Reclamation: Information on Operations and Maintenance 

Activities and Costs at Multipurpose Water Projects. GAO/AIMD-00-127. 

Washington, D.C.: May 31, 2000.

Rural Water Projects: Federal Assistance Criteria and Potential Benefits 

of the Proposed Lewis and Clark Project. GAO/RCED-99-252T. Washington, 

D.C.: July 29, 1999.

Rural Water Projects: Identifying the Benefits of the Proposed Lewis and 

Clark Project. GAO/RCED-99-115. Washington, D.C.: May 28, 1999.

Rural Water Projects: Federal Assistance Criteria Related to the Lewis 

and Clark Rural Water Project. GAO/RCED-98-231T. Washington, D.C.: 

June 18, 1998.

Rural Water Projects: Federal Assistance Criteria Related to the Fort Peck 

Reservation Rural Water Project. GAO/RCED-98-230. Washington, D.C.: 

June 18, 1998.

Rural Water Projects: Federal Assistance Criteria. GAO/RCED-98-204R. 

Washington, D.C.: May 29, 1998.

Federal Power: Recovery of Federal Investment in Hydropower Facilities 

in the Pick-Sloan Program. GAO/T-RCED-96-142. Washington, D.C.: May 2, 

1996.

Rural Development: Patchwork of Federal Water and Sewer Programs Is 

Difficult to Use. GAO/RCED-95-160BR. Washington, D.C.: April 13, 1995.

Water Subsidies: Impact of Higher Irrigation Rates on Central Valley 

Project Farmers. GAO/RCED-94-8. Washington, D.C.: April 19, 1994.

Natural Resources Management Issues. GAO/OCG-93-17TR. Washington, 

D.C.: December 1992.
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 95 GAO-04-649 Opportunities for Oversight

Reclamation Law: Changes Needed Before Water Service Contracts Are 

Renewed. GAO/RCED-91-175. Washington, D.C.: August 22, 1991.

Water Subsidies: The Westhaven Trust Reinforces the Need to Change 

Reclamation Law. GAO/RCED-90-198. Washington, D.C.: June 5, 1990.

Water Subsidies: Basic Changes Needed to Avoid Abuse of the 960-Acre 

Limit. GAO/RCED-90-6. Washington, D.C.: October 12, 1989.

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-9692 
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 96 GAO-04-649 Opportunities for Oversight

Reassess Federal Land 

Management Agencies’ 

Functions and 

Programs

The responsibilities of the four major federal land management agencies—

the National Park Service, the Bureau of Land Management (BLM), the Fish 

and Wildlife Service within the Department of the Interior, and the Forest 

Service within the Department of Agriculture—have grown more similar 

over time. Most notably, the Forest Service and BLM now provide more 

noncommodity uses, including recreation and protection for fish and 

wildlife, on their lands. In addition, managing federal lands has become 

more complex. Managers have to reconcile differences among a growing 

number of laws and regulations, and the authority for these laws is 

dispersed among several federal agencies and state and local agencies. 

These changes have coincided with two other developments—the federal 

government’s increased emphasis on downsizing and budgetary constraints 

and scientists’ increased understanding of the importance and functioning 

of natural systems whose boundaries may not be consistent with existing 

jurisdictional and administrative boundaries. Together, these changes and 

developments suggest a basis for reexamining the processes and structures 

under which the federal land management agencies operate.

Two basic strategies have been proposed to improve federal land 

management: (1) streamlining the existing structure by coordinating and 

integrating functions, systems, activities, programs, and field locations; and 

(2) reorganizing the structure by combining agencies. The two strategies 

are not mutually exclusive and some prior proposals have encompassed 

both.

Over the last several years, the Forest Service and BLM have colocated 

some offices or shared space with other federal agencies. They have also 

pursued other means of streamlining, sharing resources, and saving rental 

costs. However, no significant legislation has been enacted to streamline or 

reorganize federal land management agencies and the four major federal 

Primary agencies Department of the Interior

Department of Agriculture 

Accounts Multiple

Spending type Discretionary 

Budget subfunction 302/Conservation and land management

Theme Improve efficiency
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 97 GAO-04-649 Opportunities for Oversight

land management agencies have not, to date, developed a strategy to 

coordinate and integrate their functions, systems, activities, and programs. 

CBO could not develop a savings estimate for this option.

Related GAO Products Wildland Fires: Better Information Needed on Effectiveness of 

Emergency Stabilization and Rehabilitation Treatments. GAO-03-430. 

Washington, D.C.: April 4, 2003.

Severe Wildland Fires: Leadership and Accountability Needed to Reduce 

Risks to Communities and Resources. GAO-02-259. Washington, D.C.: 

January 31, 2002.

The National Fire Plan: Federal Agencies Are Not Organized to 

Effectively and Efficiently Implement the Plan. GAO-01-1022T. 

Washington, D.C.: July 31, 2001.

Land Management Agencies: Ongoing Initiative to Share Activities and 

Facilities Needs Management Attention. GAO-01-50. Washington, D.C.: 

November 21, 2000.

Federal Wildfire Activities: Current Strategy and Issues Needing 

Attention. GAO/RCED-99-223. Washington, D.C.: August 13, 1999.

Land Management: The Forest Service’s and BLM’s Organizational 

Structures and Responsibilities. GAO/RCED-99-227. Washington, D.C.: 

July 29, 1999.

Ecosystem Planning: Northwest Forest and Interior Columbia River 

Basin Plans Demonstrate Improvements in Land-Use Planning. 

GAO/RCED-99-64. Washington, D.C.: May 26, 1999.

Land Management Agencies: Revenue Sharing Payments to States and 

Counties. GAO/RCED-98-261. Washington, D.C.: September 17, 1998.

Federal Land Management: Streamlining and Reorganization Issues. 

GAO/T-RCED-96-209. Washington, D.C.: June 27, 1996.

National Park Service: Better Management and Broader Restructuring 

Efforts Are Needed. GAO/T-RCED-95-101. Washington, D.C.: February 9, 

1995.
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 98 GAO-04-649 Opportunities for Oversight

Forestry Functions: Unresolved Issues Affect Forest Service and BLM 

Organizations in Western Oregon. GAO/RCED-94-124. Washington, D.C.: 

May 17, 1994.

Forest Service Management: Issues to Be Considered in Developing a 

New Stewardship Strategy. GAO/T-RCED-94-116. Washington, D.C.: 

February 1, 1994.

GAO Contacts Bob Robinson, (202) 512-3841

Barry Hill, (202) 512-3841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 99 GAO-04-649 Opportunities for Oversight

350 Agriculture Eliminate or Reduce the Agriculture Department’s Market Access Program

Consolidate Common Administrative Functions at the U.S. Department of 

Agriculture 

Further Consolidate the U.S. Department of Agriculture’s County Offices

Eliminate Public Law 480 Title I Food Aid Program

Reduce or Eliminate the Export Credit Guarantee Program
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 100 GAO-04-649 Opportunities for Oversight

Eliminate or Reduce 

the Agriculture 

Department’s Market 

Access Program

The Market Access Program is an export promotion program operated by 

the Department of Agriculture’s Foreign Agricultural Service. The program 

subsidizes the promotion of U.S. agricultural products in overseas markets. 

Through a cost-sharing arrangement, the program helps fund overseas 

promotions conducted by U.S. agricultural producers, cooperatives, 

exporters, and trade associations. About three-quarters of the program 

budget supports generic promotions, with the remaining funds supporting 

brand-name promotions. Under the Farm Security and Rural Development 

Act of 2002, authorized funding for the program has increased from $110 

million in fiscal year 2003 to $125 million in fiscal year 2004, $140 million in 

fiscal year 2005, and rising to $200 million in fiscal years 2006 and 2007.

Beginning in fiscal year 1993, the Congress directed that the program to 

increase its emphasis on small businesses, establish a graduation limit, and 

certify that program funds supplement—not supplant—private sector 

expenditures. From fiscal year 1994 through fiscal year 1997, program 

reforms resulted in increases to the number of small businesses 

participating in the program as well as small businesses’ share of program 

funds. In addition, in 1998, the Foreign Agricultural Service prohibited 

direct and indirect assistance to large companies for brand-name 

promotions unless the assistance was provided through cooperatives and 

certain associations. The service also implemented a 5-year graduation 

requirement for brand-name promotional activities but waived this 

requirement for cooperatives. (As a result, promotional activities by 

cooperatives for brand-name products remained eligible for program 

funding.)

Questions remain about the overall economic benefits derived from the 

Market Access Program. Estimates of the program’s macroeconomic 

impact developed by the Foreign Agricultural Service are overstated and 

rely on a methodology that is inconsistent with OMB benefit-cost 

Primary agency Department of Agriculture

Account Commodity Credit Corporation (12-4336)

Spending type Direct

Budget subfunction 351/Farm income stabilization

Theme Reassess objectives
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 101 GAO-04-649 Opportunities for Oversight

guidelines. In addition, the evidence from market-level studies is 

inconclusive regarding program impact on specific commodities in specific 

markets. Moreover, it is difficult to ensure that funds for promotional 

activities supplement private sector expenditures, because it is hard to 

determine what would have been spent in the absence of program funds.

The Conference Report on the Omnibus Consolidated and Emergency 

Supplemental Appropriations Act of 1999 directed the Secretary of 

Agriculture to submit a report that, among other things, estimates the 

economic impact of the Market Access Program, analyzes the costs and 

benefits of the program in a manner consistent with government benefitcost guidelines, and evaluates the additional spending of participants and 

additional exports resulting from the program. As of 2003, the Foreign 

Agricultural Service had not completed this report. CBO’s budget options 

reports in recent years have included an option to eliminate the Market 

Access Program.22 Congress might choose to terminate the program or 

significantly reduce its funding absent convincing evidence that the 

program has a positive economic impact, results in increased exports that 

would not have occurred without the program, and supplements (rather 

than supplants) private sector expenditures.

CBO estimates the following budgetary savings with this option.

Five-Year Savings (for Termination)

Source: Congressional Budget Office.

Related GAO Products Agricultural Trade: Changes Made to Market Access Program, but 

Questions Remain on Economic Impact. GAO/NSIAD-99-38. Washington, 

D.C.: April 5, 1999.

22See, for example, Congressional Budget Office, Budget Options (Washington, D.C.: March 

2003).

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Change from the CBO baseline

Budget authority 7 115 188 200 200

Outlays 7 115 188 200 200
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 102 GAO-04-649 Opportunities for Oversight

U.S. Agricultural Exports: Strong Growth Likely, but U.S. Export 

Assistance Programs’ Contribution Uncertain. GAO/NSIAD-97-260. 

Washington, D.C.: September 30, 1997.

Farm Bill Export Options. GAO/GGD-96-39R. Washington, D.C.: December 

15, 1995.

Agricultural Trade: Competitor Countries’ Foreign Market Development 

Program. GAO/T-GGD-95-184. Washington, D.C.: June 14, 1995.

International Trade: Changes Needed to Improve Effectiveness of the 

Market Promotion Program. GAO/GGD-93-125. Washington, D.C.: July 7, 

1993.

U.S. Department of Agriculture: Improvements Needed in Market 

Promotion Program. GAO/T-GGD-93-17. Washington, D.C.: March 25, 1993.

GAO Contacts Loren Yager, (202) 512-4347

Phil Thomas, (202) 512-9892
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 103 GAO-04-649 Opportunities for Oversight

Consolidate Common 

Administrative 

Functions at the U.S. 

Department of 

Agriculture

In accordance with the Federal Crop Insurance Reform and Department of 

Agriculture Reorganization Act of 1994, the U.S. Department of Agriculture 

(USDA) has engaged in a reorganization and modernization effort targeted 

at achieving greater economy and efficiency and better customer service by 

the Farm Service Agency, the Natural Resources and Conservation Service, 

and the agencies in the Rural Development mission. USDA’s efforts consist 

of five interrelated initiatives: (1) colocating the agencies’ county and state 

offices, (2) merging the agencies’ administrative functions at the state and 

headquarters level under a single support organization, (3) redesigning 

agencies’ business processes, (4) modernizing information technology, and 

(5) changing the agencies’ cultures to improve customer services.

USDA’s progress in these initiatives has been mixed. For example, despite 

the agencies’ colocation of county offices, little has changed in how the 

three agencies currently serve their customers. Each of its agencies 

emphasizes a different client base and the delivery of different programs. 

Consequently, little has changed in how the three agencies work together 

to serve their customers, particularly in terms of cross-servicing and 

sharing of information. On the other hand, USDA has made substantial 

progress in deploying personal computers and a telecommunications 

network to link its service centers, and deployed a shared network server. 

However, the full range of service delivery efficiencies has not yet been 

realized because the agencies’ program applications are not fully integrated 

and not all service center employees have been trained to use the system.

In terms of merging and streamlining administrative functions, some 

progress has been made in sharing space and equipment and agreeing upon 

some common human capital practices. However, to further streamline its 

organization, increase efficiency, and reduce overhead costs associated 

with running separate offices, USDA could still do more to combine 

agencies’ support functions, such as legislative and legal affairs and public 

Primary agency Department of Agriculture

Accounts Multiple

Spending types Discretionary/Direct

Budget subfunction 352/Agricultural research and services

Theme Improve efficiency
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 104 GAO-04-649 Opportunities for Oversight

information, into a single office serving the needs of all mission component 

agencies. In addition, even though USDA has developed a plan to converge 

administrative functions for county-based agencies, a number of obstacles 

need to be overcome if the plan is to be successfully implemented, 

including the selection of a strong leadership team to implement the 

convergence plan. While it has been a few years since we last reported on 

this issue, the situation has not materially changed.

CBO agreed that this option would result in budgetary savings, but it could 

not develop a savings estimate.

Related GAO Products Major Management Challenges and Program Risks: Department of 

Agriculture. GAO-03-96. Washington, D.C.: January 2003.

U.S. Department of Agriculture: State Office Collocation. GAO/RCED-00-

208R. Washington, D.C.: June 30, 2000.

USDA Reorganization: Progress Mixed in Modernizing the Delivery of 

Services. GAO/RCED-00-43. Washington, D.C.: February 3, 2000.

U.S. Department of Agriculture: Administrative Streamlining is 

Expected to Continue Through 2002. GAO/RCED-99-34. Washington, D.C.: 

December 11, 1998.

U.S. Department of Agriculture: Update on Reorganization and 

Streamlining Efforts. GAO/RCED-97-186R. Washington, D.C.: June 24, 

1997.

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-3841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 105 GAO-04-649 Opportunities for Oversight

Further Consolidate 

the U.S. Department of 

Agriculture’s County 

Offices

The U.S. Department of Agriculture (USDA) maintains a field office 

structure that dates back to the 1930s when transportation and 

communication systems limited the geographic boundaries covered by a 

single field office and when there were a greater number of small, widely 

disbursed, family-owned farms. In 1933, the United States had more than 6 

million farmers; today the number of farms in the United States is less than 

2 million and a small fraction of these produce more than 70 percent of the 

nation’s agricultural output. About one-third of USDA’s approximately 

100,000 employees are involved in delivering the nearly $25 billion a year 

farm and rural programs. As the client base for the USDA programs 

changes and as technology offers opportunities for program delivery 

efficiencies, USDA needs to consider alternative program delivery 

approaches. In this regard, the service center agencies—Farm Service 

Agency, Natural Resources Conservation Service, and Rural 

Development—need to reassess the types of services they now provide and 

how they can work more efficiently to deliver these services in the future 

with fewer office locations.

At various times, the Congress has attempted to reduce the number of 

county offices serving farmers and/or reduce county office staffing. The 

Federal Crop Insurance Reform and Department of Agriculture 

Reorganization Act of 1994 (P.L. 103-354, Oct. 13, 1994) directed the 

Secretary of Agriculture to streamline departmental operations by 

consolidating county offices. In response to this act, USDA has closed over 

1,000 county office locations and reduced staffing at its county offices. 

However, as the agency states in its September 2001 Food and Agricultural 

Policy: Taking Stock for the New Century, “Further actions are necessary 

to ensure that the USDA farm service structure is appropriately sized, 

configured, and located for efficient provision of the new services 

demanded by a rapidly evolving food and agriculture system.”

Primary agency Department of Agriculture

Accounts Multiple

Spending type Discretionary

Budget subfunction 351/Farm income stabilization

Theme Improve efficiency
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 106 GAO-04-649 Opportunities for Oversight

USDA could further consolidate its county office field structure, for 

example, by closing more of its small county offices. Criteria for 

determining which small county offices to close could include the 

(1) distance from another county office, (2) time spent on administrative 

duties, and (3) number of farmers who receive USDA financial benefits. 

USDA’s county offices are managed through a state office structure that 

could also be streamlined. Currently, USDA maintains a state office for 

each of its three service center agencies in each of the 50 states. As with 

the county offices, as the client base for USDA’s programs change and as 

technology offers opportunities for program delivery efficiencies, USDA 

could consolidate some state offices to a regional or national level. 

CBO agreed that this option would result in budgetary savings, but it could 

not develop a savings estimate.

Related GAO Products Major Management Challenges and Program Risks: Department of 

Agriculture. GAO-03-96. Washington, D.C.: January 2003.

USDA Reorganization: Progress Mixed in Modernizing the Delivery of 

Services. GAO/RCED-00-43. Washington, D.C.: February 3, 2000.

Farm Service Agency: Characteristics of Small County Offices. 

GAO/RCED-99-102. Washington, D.C.: May 28, 1999.

U.S. Department of Agriculture: Status of Closing and Consolidating 

County Offices. GAO/T-RCED-98-250. Washington, D.C.: July 29, 1998.

Farm Programs: Service to Farmers Will Likely Change as Farm Service 

Agency Continues to Reduce Staff and Close Offices. GAO/RCED-98-136. 

Washington, D.C.: May 1, 1998.

Farm Programs: Administrative Requirements Reduced and Further 

Program Delivery Changes Possible. GAO/RCED-98-98. Washington, D.C.: 

April 20, 1998.

Farm Programs: Impact of the 1996 Farm Act on County Office 

Workload. GAO/RCED-97-214. Washington, D.C.: August 19, 1997.

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-3841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 107 GAO-04-649 Opportunities for Oversight

Eliminate the Public 

Law 480 Title I Food 

Aid Program

Over the past 50 years, the United States has allocated billions of dollars in 

food assistance under Title I of the 1954 Agricultural Trade Development 

and Assistance Act, commonly known as P.L. 480.23 Under the Title I 

program, administered by the Department of Agriculture (USDA), U.S. 

agricultural commodities are sold to eligible countries under concessional 

terms.24 In support of broad U.S. foreign policy goals, the program’s 

objectives are to enhance food security, promote broad-based sustainable 

development, develop and expand markets for U.S. agricultural 

commodities, and prevent conflict. However, the Title I program does not 

effectively further these goals.

First, there is little evidence that the Title I program has promoted broadbased sustainable development. In 1995, we reported that the primary 

means by which Title I assistance could contribute to broad-based 

sustainable development would be by helping recipient countries save 

foreign exchange when importing U.S. agricultural commodities; the 

savings could be invested in projects that promote long-term economic 

development. However, we found that the value of foreign exchange that 

countries might save through purchasing Title I commodities on 

concessional terms is small relative to their development needs. Also, the 

program provides USDA with little leverage to influence development 

activities or initiate policy reforms in recipient countries, and competing 

objectives dilute whatever leverage might be associated with the program.

Primary agency Department of Agriculture

Accounts P.L. 480 Grants (12-2278)

P.L. 480 Program (12-2277)

Spending type Discretionary/Direct

Budget subfunction 351/Farm income stabilization

Theme Reassess objectives

23This option does not address P.L. 480 Titles II or III, which fund the donation of 

commodities for emergency and developmental needs.

24Title I offers credit terms with low interest rates with a maximum 30-year repayment 

period and a maximum 5-year grace period.
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 108 GAO-04-649 Opportunities for Oversight

Second, there is little evidence that the Title I program has contributed to 

the long-term, foreign market development for U.S. agricultural goods. 

None of the many studies of the Title I program that we reviewed 

established a link between Title I assistance and the establishment of a 

long-term commercial market for U.S. agricultural products. Title I 

commodities tend to be price sensitive, making it difficult to transform the 

concessional market share established through the Title I program into 

commercial market share.

Moreover, we found that legislative requirements impose constraints on 

recipient countries that undermine market development efforts. For 

example, “cargo preference” provisions require that 75 percent of food aid 

tonnage be shipped on U.S.-flagged ships. As a result, some recipient 

countries were forced to purchase different commodities than planned 

based on the availability of U.S.-flagged ships rather than the availability of 

U.S. commodities. Other program requirements severely restrict 

recipients’ ability to reexport Title I commodities after processing, which 

discouraged potential importers from participating and eliminated an 

important source of foreign exchange earnings for recipient countries.

Since the 1980s, the Title I program has accounted for a declining share of 

total U.S. food assistance. Title I accounted for about 52 percent of the 

$15.8 billion in food assistance provided between fiscal years 1980 and 1989 

but only about 11 percent of the $9.2 billion in food assistance provided 

between fiscal years 2000 and 2004. This decline reflects a growing need 

and priority for humanitarian food assistance provided under other 

programs (primarily Title II) and concerns about the Title I program’s 

effectiveness.

In 2001, The President’s Management Agenda identified U.S. food aid 

programs (including Title I) as 1 of 14 government areas most in need of 

reform and characterized these programs as duplicative, wasteful, and 

inefficient. The agenda commented on the fact that six different food aid 

programs are administered by two government agencies with similar 

bureaucracies (USDA and the U.S. Agency for International Development). 

The agenda called for more direct feeding of hungry populations as a 

primary goal; better analysis of benefits, costs, and performance to 

determine priorities; minimizing bureaucratic duplication and inefficiency; 

and greater efficiency and transparency in program management and 

implementation.
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OMB’s fiscal year 2004 Program Assessment Rating Tool rated USDA’s food 

aid programs25 as “results not demonstrated.” OMB’s assessment 

concluded that these programs were not optimally designed, lacked 

performance measures linked to strategic goals and the budget, and did not 

collect annual performance data or make such data available to the public 

in a transparent and meaningful manner. Additionally, OMB’s assessment 

identified the need for better coordination between USDA and the U.S. 

Agency for International Development, but concluded that meaningful 

steps to address this and other strategic planning deficiencies had not been 

taken.

In summary, there is little evidence that the Title I program has promoted 

economic development or contributed to developing long-term foreign 

markets for U.S. agricultural goods. Moreover, multiple and sometimes 

competing objectives, as well as contradictory program requirements, 

encumber the program, making it difficult to create and implement an 

effective program strategy. Furthermore, the trend in U.S. food aid reflects 

a growing need and priority for humanitarian food assistance provided 

under other programs. Thus, one option that Congress may wish to 

consider is the elimination of the Title I program.

CBO estimates that eliminating the Title I program would produce savings.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Food Aid: Experience of U.S. Programs Suggests Opportunities for 

Improvement. GAO-02-801T. Washington, D.C.: June 4, 2002.

25OMB’s assessment included the following USDA programs: P.L. 480 Title I, 416(b), Food for 

Progress, and the Bill Emerson Humanitarian Trust. It did not include the Global Food for 

Education program.

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the 2004 plan

Budget authority 132 135 137 140 142

Outlays 69 124 132 135 137
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U.S. Agricultural Exports: Strong Growth Likely But U.S. Export 

Assistance Programs’ Contribution Uncertain. GAO/NSIAD-97-260. 

Washington, D.C.: September 30, 1997.

Farm Bill Export Options. GAO/GGD-96-39R. Washington, D.C.: December 

15, 1995.

Food Aid: Competing Goals and Requirements Hinder Title I Program 

Results. GAO/GGD-95-68. Washington, D.C.: June 26, 1995.

Cargo Preference Requirements: Objectives Not Significantly Advanced 

When Used in U.S. Food Aid Programs. GAO/GGD-94-215. Washington, 

D.C.: September 29, 1994.

Public Law 480 Title I: Economic and Market Development Objectives Not 

Met. GAO/T-GGD-94-191. Washington, D.C.: August 3, 1994.

GAO Contacts Loren Yager, (202) 512-4347

Phil Thomas, (202) 512-9892
Appendix III

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Efficiency, and Effectiveness of Federal 

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Reduce or Eliminate 

the Export Credit 

Guarantee Programs

Export credit guarantee programs are intended to promote the export of 

U.S. agricultural products by facilitating access to export credit for 

countries that lack adequate commercial credit. These programs 

encourage U.S. lenders to extend credit to approved foreign banks 

financing imports of U.S. agricultural products. Under these programs, the 

Department of Agriculture (USDA) provides a guarantee to U.S. banks 

willing to finance such transactions for exporters shipping U.S. products to 

foreign importers in eligible countries. The Export Credit Guarantee 

Program covers loans up to 3 years, while the Intermediate Export Credit 

Guarantee Program covers loans up to 10 years.26 Through 2007, USDA is 

authorized to make a total of $5.5 billion in government loan guarantees 

available each year to finance imports of U.S. agricultural commodities, 

plus an additional $1 billion for “emerging markets”—countries that are in 

the process of becoming commercial markets for U.S. agricultural 

products.27 The actual level of credit guarantees depends on market 

conditions and the demand for financing by eligible (i.e., creditworthy) 

countries.

Since the export credit guarantee programs began in the 1980s, the U.S. 

government has paid billions in claims because foreign country buyers 

Primary agency Department of Agriculture

Accounts Commodity Credit Corporation Loans

Program Account (12-1336)

Commodity Credit Corporation Fund

(12-4336)

Spending type Direct

Budget subfunction 351/Farm income stabilization

Theme Reassess objectives

26 Also known, respectively, as the General Sales Manager (GSM)-102 and GSM-103 

programs.

27 The 2002 Farm Security and Rural Investment Act authorized this level of export credit 

guarantees annually through fiscal year 2007. The act gives USDA’s Commodity Credit 

Corporation the flexibility to determine the allocation between short- and intermediate-term 

programs.
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rescheduled or defaulted on their loan repayments.28 USDA reports that, as 

of February 2004, the government had paid claims totaling about $8.9 

billion against issued guarantees of about $77.6 billion.29 In 1997, we 

reported that the programs had incurred high claims costs because USDA 

provided a large amount of loan guarantees to high-risk countries (such as 

Iraq and the former Soviet Union) for market development reasons and 

foreign policy considerations. According to USDA officials, claims have 

been lower in recent years because fewer guarantees have been issued for 

exports to high-risk countries.30 USDA reports that activity in fiscal year 

2003 for both export credit programs totaled $2.55 billion. The major 

recipient countries were Turkey ($532 million), South Korea ($372 million), 

and Mexico ($177 million). Guarantees have helped facilitate sales of a 

broad range of commodities but, according to CRS, have mainly benefited 

exports of wheat, wheat flour, oil seeds, feed grains, and cotton.31

Proponents of the export credit guarantee (and other export assistance) 

programs, including USDA and some industry groups, maintain that these 

programs benefit the overall U.S. economy, benefit the U.S. agricultural 

sector, counter competitor nations’ agricultural export programs, and 

promote U.S. trade negotiating objectives. However, we reported in 1997 

that there is limited evidence that these programs have (1) measurably 

expanded aggregate employment and output, (2) reduced trade and budget 

deficits, or (3) provided income and employment benefits in the U.S. 

agricultural sector. These programs largely reallocate production, 

employment, and income between sectors or targeted markets. Regarding 

competitor nations’ programs, we reported that that lack of openness in 

other nations’ agricultural assistance efforts makes it difficult to determine 

28 Under these programs, if a purchaser defaults on its loan, the lending bank may file a 

claim with USDA’s Commodity Credit Corporation. The corporation then becomes 

responsible for collecting the amount of the claim and any accrued interest (calculated 

using the bank’s lending rate).

29 The Export Credit Guarantee Program (GSM-102) issued the bulk of these guarantees—

more than $75.4 billion. The Intermediate Export Credit Guarantee Program (GSM-103), 

which has not been used much in recent years, issued over $2.2 billion.

30 In 1997, we reported that as of January 1997, the government had paid claims totaling 

about $7.8 billion since 1980 (an average of about $488 million per year). Between January 

1997 and February 2004, the government paid additional claims totaling about $1.1 billion 

(an average of about $157 million per year).

31 Congressional Research Service, Agricultural Export and Food Aid Programs

(Washington, D.C.: Jan. 30, 2004).
Appendix III

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conclusively how effectively U.S. export programs counter these foreign 

practices. Additionally, several economic studies indicated that foreign 

competitors find U.S. export subsidies relatively inexpensive to offset.

Concerning U.S. trade negotiating objectives, we reported in 1997 that 

there are widely divergent views about the amount of leverage these 

programs have provided in the past. Although USDA views the credit 

guarantee programs as commercial programs, the European Union and 

other trading partners charge that these programs have a subsidy element 

that gives the United States an unfair competitive advantage. In September 

1999, U.S. negotiators presented a comprehensive proposal for significant 

disciplines on the use of agriculture export credit programs to the 

Organization for Economic Cooperation and Development. Many in the 

U.S. agricultural community have expressed concern that these 

programs—which they regard as effective tools for expanding agricultural 

exports—not be adversely affected by trade negotiations. The Trade Act of 

2002 (P.L. 107-210) makes preservation of export credit programs a 

principal U.S. negotiating objective for the current round of multilateral 

trade negotiations. Nevertheless, CRS reports that U.S. officials have 

indicated a willingness to discuss new disciplines on export credit 

programs. These new disciplines would mainly focus on limiting the 

repayment period of the credit programs.

Congress may wish to consider reducing these programs’ costs. One option 

would be to reduce credit guarantees to high-risk countries, which would 

lessen the potential for additional program costs due to defaults. A second 

option would be to reduce USDA’s annual program budget for credit 

guarantees, allowing USDA to determine where to make reductions. A 

third option would be to eliminate one or both of the programs. 

Although CBO agreed that these options could result in budgetary savings, 

it could not develop savings estimates.

Related GAO Products U.S. Agricultural Exports: Strong Growth Likely but U.S. Export 

Assistance Programs’ Contribution Uncertain. GAO/NSIAD-97-260. 

Washington, D.C.: September 30, 1997.

Farm Bill Export Options. GAO/GGD-96-39R. Washington, D.C.: December 

15, 1995.
Appendix III

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Efficiency, and Effectiveness of Federal 

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Former Soviet Union: Creditworthiness of Successor States and U.S. 

Export Credit Guarantees. GAO/GGD-95-60. Washington, D.C.: February 

24, 1995.

GSM Export Credit Guarantees. GAO/GGD-94-211R. Washington, D.C.: 

September 29, 1994.

U.S. Department of Agriculture: Issues Related to the Export Credit 

Guarantee Programs. GAO/T-GGD-93-28. Washington, D.C.: May 6, 1993.

Loan Guarantees: Export Credit Guarantee Programs’ Costs Are High. 

GAO/GGD-93-45. Washington, D.C.: December 22, 1992.

International Trade: Iraq’s Participation in U.S. Agricultural Export 

Programs. GAO/NSIAD-91-76. Washington, D.C.: November 14, 1990.

GAO Contacts Loren Yager, (202) 512-4347

Phil Thomas, (202) 512-9892
Appendix III

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Efficiency, and Effectiveness of Federal 

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370 Commerce and 

Housing Credit

Recapture Interest on Rural Housing Loans

Require Self-Financing of Mission Oversight by Fannie Mae and 

Freddie Mac

Reduce Federal Housing Administration’s Insurance Coverage

Merging U.S. Department of Agriculture and Department of Housing and 

Urban Development Single-Family Insured Lending Programs and 

Multifamily Portfolio Management Programs

Consolidate Homeless Assistance Programs

Reorganize and Consolidate Small Business Administration’s 

Administrative Structure

Improve Reviews of Small Business Administration’s Preferred Lenders

Eliminate NIST’s Advanced Technology Program
Appendix III

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Efficiency, and Effectiveness of Federal 

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Recapture Interest on 

Rural Housing Loans

The Housing Act of 1949, as amended, requires U.S. Department of 

Agriculture’s (USDA) Rural Housing Service (RHS) to recapture a portion 

of the subsidy provided over the life of direct housing loans it makes when 

the borrower sells or vacates a property. The rationale is that because 

taxpayers paid a portion of the mortgage, they are entitled to a portion of 

the property’s appreciation. Because recapture is not mandated when 

homes are refinanced, RHS’s policy allows borrowers who pay off direct 

RHS loans but continue to occupy the properties to defer the payments for 

recapturing the subsidies. As of July 31, 1999, RHS’s records showed that 

about $140 million was owed by borrowers who had refinanced their 

mortgages but continued to occupy the properties. RHS does not charge 

interest on the amounts owed by these borrowers.

Legislative changes could be made to allow RHS to charge market rate 

interest on recapture amounts owed by borrowers to help recoup the 

government’s administrative and borrowing costs. Actual savings could 

differ depending on how this proposal would affect the rate at which 

homes are sold.

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Primary agency Department of Agriculture

Account Rural Housing Insurance Fund (12-2081)

Spending type Direct

Budget subfunction 371/Mortgage credit

Theme Redefine beneficiaries

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Change from the CBO baseline

Budget authority 45 0 0 0 0

Outlays 45 0 0 0 0
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Related GAO Product Rural Housing Programs: Opportunities Exist for Cost Savings and 

Management Improvement. GAO/RCED-96-11. Washington, D.C.: 

November 16, 1995.

GAO Contact Thomas J. McCool, (202) 512-8678
Appendix III

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Efficiency, and Effectiveness of Federal 

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Require Self-Financing 

of Mission Oversight by 

Fannie Mae and 

Freddie Mac

The Congress established and chartered the Federal National Mortgage 

Association (Fannie Mae) and the Federal Home Loan Mortgage 

Corporation (Freddie Mac) as government-sponsored enterprises. These 

enterprises are privately-owned corporations chartered to enhance the 

availability of mortgage credit across the nation. The Congress also 

charged the Department of Housing and Urban Development (HUD) with 

mission oversight responsibility for the enterprises, which includes 

ensuring that housing goals established by HUD result in enhanced housing 

opportunities for certain groups of borrowers.

Other federal organizations responsible for regulating governmentsponsored enterprises are financed by assessments on the regulated 

entities. However, HUD’s mission oversight expenditures are funded with 

taxpayer dollars from HUD’s appropriations. Accordingly, HUD’s capability 

to strengthen its enterprise housing mission oversight may be limited 

because resources that could be used for that purpose must compete with 

other priorities. For example, HUD’s capacity to implement a program to 

verify housing goal data, which would necessarily involve a commitment of 

additional resources, may be limited.

Requiring Fannie Mae and Freddie Mac to reimburse HUD for mission 

oversight expenditures would not only result in budgetary savings but 

would also enable HUD to strengthen its oversight activities.

CBO estimates the following budgetary savings with this option.

Primary agency Department of Housing and Urban 

Development

Account Office of Federal Housing Enterprise 

Oversight, Salaries and Expenses (86-

5272)

Spending type Direct

Budget subfunction 371/Mortgage credit

Theme Redefine beneficiaries
Appendix III

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Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Housing Enterprises: The Roles of Fannie Mae and Freddie Mac in the 

U.S. Housing Finance System. GAO/T-GGD-00-182. Washington, D.C.: July 

25, 2000.

Federal Housing Enterprises: HUD’s Mission Oversight Needs to Be 

Strengthened. GAO/GGD-98-173. Washington, D.C.: July 28, 1998.

Government-Sponsored Enterprises: Advantages and Disadvantages of 

Creating a Single Housing GSE Regulator. GAO/GGD-97-139. Washington, 

D.C.: July 9, 1997.

Government-Sponsored Enterprises: A Framework for Limiting the 

Government’s Exposure to Risks. GAO/GGD-91-90. Washington, D.C.: May 

22, 1991.

GAO Contact Thomas J. McCool, (202) 512-8678

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Change from the CBO baseline

Budget authority 10 10 10 10 10

Outlays 10 10 10 10 10
Appendix III

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Reduce Federal 

Housing 

Administration’s 

Insurance Coverage

Through its Federal Housing Administration (FHA), the Department of 

Housing and Urban Development (HUD) insures private lenders against 

nearly all losses resulting from foreclosures on single-family homes insured 

under its Mutual Mortgage Insurance Fund. The Department of Veterans 

Affairs (VA) also operates a single-family mortgage guaranty program. 

However, unlike FHA, VA covers only 25 to 50 percent of the original loan 

amount against losses incurred when borrowers default on loans, leaving 

lenders responsible for any remaining losses.

In May 1997, GAO reported that reducing FHA’s insurance coverage to the 

level permitted for VA home loans would likely reduce the Fund’s exposure 

to financial losses, thereby improving its financial health. As a result, the 

Fund’s ability to maintain financial self-sufficiency in an uncertain future 

would be enhanced. For example, if insurance coverage on FHA’s 1995 

loans was reduced to VA’s levels and a 14 percent volume reduction in 

lending was assumed, GAO estimated that the economic value of the loans 

would increase by $52 million to $79 million. Economic value provides an 

estimate of the profitability of FHA loans, which is important because 

estimated increases in economic value due to legislative changes allow 

additional mandatory spending authorizations to be made, other revenues 

to be reduced, or projected savings in the federal budget to be realized. 

Reducing FHA’s insurance coverage would likely improve the financial 

health of the Fund because the reduction in claim payments resulting from 

lowered insurance coverage would more than offset the decrease in 

premium income resulting from reduced lending volume.

Legislative changes could be made to reduce FHA’s insurance coverage. 

Savings under this option would depend on future economic conditions, 

the volume of loans made, how higher risk and lower risk borrowers would 

Primary agency Department of Housing and Urban 

Development

Account FHA-Mutual Mortgage Insurance Program 

Account (86-0183)

Spending types Discretionary/Direct

Budget subfunction 371/Mortgage credit

Theme Improve efficiency
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be identified for exclusion from the program, and whether some losses may 

be shifted from FHA to the Government National Mortgage Association. In 

addition, reducing FHA’s insurance coverage does pose trade-offs affecting 

lenders, borrowers, and FHA’s role, such as diminishing the federal role in 

stabilizing markets. Low-income, first-time, and minority home buyers and 

those individuals purchasing older homes are most likely to experience 

greater difficulty in obtaining a home mortgage.

CBO could not provide an estimate for this option.

Related GAO Products Mortgage Financing: Changes in the Performance of FHA-Insured Loans.

GAO-02-773. Washington, D.C.: July 10, 2002.

Mortgage Financing: FHA’s Fund Has Grown, but Options for Drawing 

on the Fund Have Uncertain Outcomes. GAO-01-460. Washington, D.C.: 

February 28, 2001.

Homeownership: Potential Effects of Reducing FHA’s Insurance Coverage 

for Home Mortgages. GAO/RCED-97-93. Washington, D.C.: May 1, 1997.

GAO Contact Thomas J. McCool, (202) 512-8678
Appendix III

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Efficiency, and Effectiveness of Federal 

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Merging Department of 

Agriculture and 

Department of Housing 

and Urban 

Development SingleFamily Insured 

Lending Programs and 

Multifamily Portfolio 

Management Programs

The Department of Agriculture (USDA), primarily through its Rural 

Housing Service (RHS), has jurisdiction over most federal rural housing 

programs. The Department of Housing and Urban Development (HUD), 

primarily through its Federal Housing Administration (FHA), has 

jurisdiction over the major nationwide federal housing programs. As the 

distinctions between rural and urban life have blurred and federal budgets 

have tightened, the need for the separate rural housing programs, first 

created in the mid-1930s to stimulate the rural economy and assist needy 

rural families, is questionable.

Similarities exist between the RHS and FHA programs for delivering rural 

housing, and efficiencies could be achieved by merging the two programs. 

For instance, RHS’s single-family guaranteed loan program and FHA’s 

single-family insured loan program both primarily target low- and 

moderate-income households, use the same qualifying ratios, and operate 

in the same markets. Even though RHS’s program offers more attractive 

terms for the borrower and is available only in rural areas, whereas FHA’s 

program is available nationwide, both programs could be offered through 

the same network of lenders. Adapting each one’s best practices for use by 

the other and eliminating inconsistencies in the rules applicable to private 

owners under the current programs would improve the efficiency with 

which the federal government delivers rural housing programs.

As we reported, to optimize the federal role in rural housing, the Congress 

may wish to consider requiring USDA and HUD to examine the benefits and 

costs of merging those programs that serve similar markets and provide 

similar products. As a first step, the Congress could consider requiring 

RHS and HUD to explore merging their single-family insured lending 

programs and multifamily portfolio management programs, taking 

Primary agencies Department of Agriculture

Department of Housing and Urban 

Development

Accounts Multiple

Spending types Direct/Discretionary

Budget subfunction 371/Mortgage credit

Theme Improve efficiency
Appendix III

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advantage of the best practices of each and ensuring that targeted 

populations are not adversely affected.

Although CBO agrees that the option may result in savings, it could not 

develop a savings estimate for this option.

Related GAO Product Rural Housing: Options for Optimizing the Federal Role in Rural 

Housing Development. GAO/RCED-00-241. Washington, D.C.: September 

15, 2000.

GAO Contact Thomas J. McCool, (202) 512-8678
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 124 GAO-04-649 Opportunities for Oversight

Consolidate Homeless 

Assistance Programs

In 1987, the Congress passed the Stewart B. McKinney Act (P.L. 100-77) to 

provide a comprehensive federal response to address the multiple needs of 

homeless people. The act encompassed both existing and new programs, 

including those providing emergency food and shelter, those offering longterm housing and supportive services, and those designed to demonstrate 

effective approaches for providing homeless people with services. Over 

the years, some of the original McKinney programs have been consolidated 

or eliminated, and some new programs have been added. Today homeless 

people receive assistance through these programs as well as other federal 

programs that are not authorized under the McKinney Act but are 

nevertheless specifically targeted to serve the homeless population. In 

February 1999, we reported that seven federal agencies administer 16 

programs that are targeted to serve the homeless population. In fiscal year 

2001, the targeted programs were funded at roughly $1.7 billion.

While these federal programs offer a wide range of services to the homeless 

population, some of these services appear similar. For example, food and 

nutrition services can be provided to homeless people through eight 

different programs administered by five different agencies. Moreover, our 

work at the state and local level has found that state and local government 

officials generally believe that the federal government has not done a good 

job of coordinating its various homeless assistance programs. This 

perceived lack of coordination could adversely affect the ability of states 

and localities to integrate their own programs. Also, we reported that, 

because different homeless assistance programs have varying sets of 

eligibility and funding requirements, they can cause coordination 

difficulties for the federal agencies administering them as well as 

administrative and coordination burdens for the states and communities 

that have to apply for and use these funds.

Primary agency Department of Housing and Urban 

Development

Accounts Multiple

Spending types Direct/Discretionary

Budget subfunctions Multiple

Theme Improve efficiency
Appendix III

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The Congress may wish to consider consolidating all homeless assistance 

programs under HUD because HUD (1) has taken a leadership role in the 

area of homelessness, (2) has developed a well-respected approach for 

delivering homeless assistance programs called the Continuum of Care, 

and (3) is responsible for administering most of the funds for programs 

targeted to the homeless. Consolidating all of the homeless assistance 

programs under HUD should result in administrative and operational 

efficiencies at the federal level as well as reduce the administrative and 

coordination burdens of state and local governments. 

CBO was not able to estimate the budget savings for this option.

Related GAO Products Homelessness: Improving Program Coordination and Client Access to 

Program. GAO-02-485T. Washington, D.C.: March 6, 2002.

Homelessness: Consolidating HUD’s McKinney Programs. GAO/T-RCED00-187. Washington, D.C.: May 23, 2000.

Homelessness: State and Local Efforts to Integrate and Evaluate 

Homeless Assistance Programs. GAO/RCED-99-178. Washington, D.C.: 

June 29, 1999.

Homelessness: Coordination and Evaluation of Programs Are Essential. 

GAO/RCED-99-49. Washington, D.C.: February 26, 1999.

Homelessness: McKinney Act Programs Provide Assistance but Are Not 

Designed to Be the Solution. GAO/RCED-94-37. Washington, D.C.: May 31, 

1994.

GAO Contact Thomas J. McCool, (202) 512-8678
Appendix III

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Efficiency, and Effectiveness of Federal 

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Reorganize and 

Consolidate Small 

Business 

Administration’s 

Administrative 

Structure

The Small Business Administration’s (SBA) complicated and overlapping 

organizational relationships and a field structure that does not consistently 

match mission requirements have combined to impede staff efforts to 

deliver services effectively. Some of the complex organizational 

relationships stem from legislative requirement. Others result from past 

SBA realignment efforts that changed how the agency performs its 

functions but left aspects of the previous structure intact.

For example, district staff working on SBA loan programs report to their 

district management, while loan processing and servicing center staff 

report directly to the Office of Capital Access in headquarters. Yet, district 

office loan program staffs sometimes need to work with the loan 

processing and servicing centers to get information or to expedite loans for 

lenders in their district. Because loan processing and servicing centers 

report directly to the Office of Capital Access, requests that are directed to 

the centers sometimes must go from the district through the Office of 

Capital Access then back to the centers. District managers and staff said 

that sometimes they cannot get answers to questions when lenders call and 

that they have trouble expediting loans because they lack authority to 

direct the centers to take any action. Lender association representatives 

said that the lines of authority between headquarters and the field can be 

confusing and that practices vary from district to district.

In 2002, GAO reported that SBA drafted a 5-year workforce transformation 

plan. The draft plan recognizes SBA’s need to restructure its workforce, 

privatize noncore functions, adjust incentives and goals, and streamline its 

headquarters’ operation. In October 2003, GAO reported that SBA had 

made some progress in implementing the first phase of its transformation 

but that further progress could be hampered by budget staff realignment 

challenges. Improvements in SBA’s organizational structure could lead to 

savings in human capital and office space costs.

Primary agency Small Business Administration

Accounts Multiple

Spending type Discretionary

Budget subfunction 376/Other advancement of commerce

Theme Improve efficiency
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Some options that the Congress could consider to assist SBA in its 

transformation effort include

• rescinding or combining some of the legislatively mandated offices, 

programs, or aspects of existing programs,

• rescinding some of the reporting relationships, grades, or types of 

appointments for senior SBA officials, and

• giving the agency the ability to close or consolidate some of its 

inefficiently located field offices.

CBO agrees that this option would result in budgetary savings, but it could 

not develop a savings estimate.

Related GAO Products Small Business Administration: Progress Made, but Transformation 

Could Benefit from Practices Emphasizing Transparency and 

Communication. GAO-04-76. Washington, D.C.: October 31, 2003.

Small Business Administration: Workforce Transformation Plan Is 

Evolving. GAO-02-931T. Washington, D.C.: July 16, 2002.

Small Business Administration: Current Structure Presents Challenges 

for Service Delivery. GAO-02-17. Washington, D.C.: October 26, 2001.

GAO Contact Davi D’Agostino, (202) 512-8678
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 128 GAO-04-649 Opportunities for Oversight

Improve Reviews of 

Small Business 

Administration’s 

Preferred Lenders

The Small Business Administration’s (SBA) largest business loan program, 

the “7(a) program,” is intended to serve small business borrowers who 

cannot otherwise obtain financing under reasonable terms and conditions 

from the private sector. As of September 30, 2002, SBA had a total portfolio 

of about $46 billion, including $42 billion in direct and guaranteed small 

business loans and other guarantees. SBA delegates full authority to 

preferred lenders to make loans without prior SBA approval. In fiscal year 

2002, preferred lenders approved 55 percent of the dollar value of all 7(a) 

loans—about $7 billion. Because SBA guarantees up to 85 percent of the 

7(a) loans made by its lending partners, there is risk to SBA if the loans are 

not repaid. The default rate in recent years has been around 14 percent.

SBA is required by law to review preferred lenders at least annually. SBA 

has made progress in developing its lender oversight program, including 

ranking SBA lenders based on their projected financial risk to the agency. 

However, SBA has yet to fully develop and implement effective oversight 

programs that assess lenders’ decisions on borrowers’ creditworthiness 

and eligibility.

To improve its reviews of preferred lenders, SBA should develop specific 

criteria to apply to the “credit elsewhere” standard,32 and perform 

qualitative assessments of lenders’ performance and lending decisions. 

Implementation of these recommendations could lead to lower defaults on 

7(a) loans and/or a smaller 7(a) loan program.

CBO could not estimate the budget savings for this option.

Primary agency Small Business Administration

Account Business Loans Program Account (73-

1154)

Spending types Direct/Discretionary

Budget subfunction 376/Other advancement of commerce

Theme Improve efficiency

32The “credit elsewhere” standard is a test to determine whether the borrower can obtain 

credit without the SBA guarantee.
Appendix III

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Related GAO Product Small Business Administration: Progress Made but Improvements 

Needed in Lender Oversight. GAO-03-90. Washington, D.C.: December 9, 

2002.

GAO Contact Davi D’Agostino, (202) 512-8678
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 130 GAO-04-649 Opportunities for Oversight

Eliminate NIST’s 

Advanced Technology 

Program

The Advanced Technology Program, administered by the National Institute 

of Standards and Technology (NIST), was established in 1988 to improve 

the competitive position of U.S. businesses by supporting private industry 

research that accelerates the development of high-risk technologies with 

potential for broad-based economic benefits for the nation. The Advanced 

Technology Program is designed to fund research that businesses alone 

would not fund. While NIST has reported successes, NIST cannot ensure 

that the business or a competitor would not conduct this research in the 

same time period without government assistance. For example, our April 

2000 retrospective look at three Advanced Technology Program research 

projects found that their goals were similar to research goals already being 

funded by the private sector.

In 2004, U.S. businesses are in a markedly improved competitive position 

compared with Japanese and other foreign businesses competing in the 

global economy. In addition, NIST cannot ensure that Advanced 

Technology Program funding is critical for the timely development of 

generic technologies that may be vital to the U.S. and global economies. 

For these reasons, one option for the Congress is to terminate the 

Advanced Technology Program.

CBO estimates the following budgetary savings with this option.

Primary agency Department of Commerce

Account Industrial Technology Services (13-0525)

Spending type Discretionary

Budget subfunction 376/Other advancement of commerce

Theme Reassess objectives
Appendix III

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Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Advanced Technology Program: Inherent Factors in Selection Process 

Could Limit Identification of Similar Research. GAO/RCED-00-114. 

Washington, D.C.: April 24, 2000.

Federal Research: Information on the Advanced Technology Program’s 

Award Selection. GAO/RCED-99-258R. Washington, D.C.: August 3, 1999.

Federal Research: Information on the Advanced Technology Program’s 

1997 Award Selection. GAO/RCED-98-82R. Washington, D.C.: February 24, 

1998.

National Institute of Standard and Technology: Carryover Balances for 

Fiscal Year 1997. GAO/RCED-97-144R. Washington, D.C.: April 30, 1997.

R&D Funding Sources for ATP Applicants. GAO/RCED/OCE-96-258R. 

Washington, D.C.: September 20, 1996.

Measuring Performance: The Advanced Technology Program and 

Private-Sector Funding. GAO/RCED-96-47. Washington, D.C.: January 11, 

1996.

Federal Research: Advanced Technology Program’s Indirect Cost Rates 

and Program Evaluation Status. GAO/RCED-93-221. Washington, D.C.: 

September 10, 1993.

GAO Contacts Bob Robinson, (202) 512-3841

Robin Nazzaro, (202) 512-3841

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Change from the 2004 funding level

Budget authority 172 174 178 181 186

Outlays 173 171 173 176 180
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Efficiency, and Effectiveness of Federal 

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400 Transportation Make Further Appropriations on the Pulsed Fast Neutron Analysis 

Inspection System Dependent on Results of Operational Testing

Close, Consolidate, or Privatize Some Coast Guard Operating and Training 

Facilities

Convert Some Support Officer Positions to Civilian Status

Develop a Passenger Intercity Rail Policy to Meet National Goals

Eliminate Cargo Preference Laws to Reduce Federal Transportation Costs

Increase Aircraft Registration Fees to Enable the Federal Aviation 

Administration to Recover Actual Costs

Improve the Coordination of Transportation Services for TransportationDisadvantaged Populations
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

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Make Further 

Appropriations on the 

Pulsed Fast Neutron 

Analysis Inspection 

System Dependent on 

Results of Operational 

Testing

One type of technology under development for detecting explosives and 

narcotics is a pulsed fast neutron analysis (PFNA) inspection system. 

PFNA is designed to directly and automatically detect and measure the 

presence of specific materials (e.g., cocaine) by exposing their constituent 

chemical elements to short bursts of subatomic particles called neutrons. 

Four government agencies—the Transportation Security Administration 

(TSA), Bureau of Customs and Border Protection (CBP), Department of 

Defense (DOD), and Federal Aviation Administration (FAA)—are currently 

involved in two separate joint efforts to test and demonstrate PFNA’s 

capabilities at ports of entry. As we reported initially in 1999 and in 

subsequent budget options reports for Congress, the agencies involved in 

developing PFNA believed that PFNA was too expensive33 and too large for 

operational use in most ports of entry or other sites. TSA continues to 

believe that PFNA will not meet its operational requirements for maritime 

and land applications. While CBP also believes PFNA will not be able to 

meet its operational requirements, it also believes PFNA shows enough 

promise to continue with the operational test. DOD now prefers not to 

express an opinion on whether PFNA would satisfy its requirements or be 

too expensive until after operational testing and a cost benefit analysis are 

completed. 

Primary agency Multiple

Account FAA—Research, Engineering and 

Development (69-8108)

Spending type Discretionary

Budget subfunction 402/Air transportation

Theme Reassess objectives

33 We reported last year that PFNA was estimated at between $10 million to $15 million per 

unit to acquire. See U.S. General Accounting Office, Opportunities for Oversight and 

Improved Use of Taxpayer Funds: Examples of Selected GAO Work, GAO-03-1006

(Washington, D.C.: Aug. 1, 2003).
Appendix III

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The first PFNA effort,34 is a DOD-led joint operational evaluation with CBP 

and TSA at the Ysleta border crossing in El Paso, Texas. This operational 

evaluation will test PFNA’s ability to detect drugs, explosives, chemical 

warfare agents, currency, and nuclear materials. It is currently scheduled 

for completion in October 200435 with a final report due in December 2004, 

and a cost benefit analysis scheduled for completion in March 2005. It is 

estimated to cost $17.8 million36 to the government, which includes $8.5 

million for a firm, fixed-price contract with PFNA’s manufacturer, The 

Ancore Corporation, to deliver a system to Ysleta and provide support and 

maintenance for the test. The $17.8 million total consists of $6.7 million 

from DOD, $4.8 million from TSA, and $6.3 million from CBP. DOD officials 

stated that its lead role in the joint Ysleta operational test is as an 

independent evaluator and does not indicate an endorsement of the system 

for use by DOD.

The second PFNA effort,37 is a demonstration at the George Bush 

Intercontinental Airport in Houston, Texas. TSA is currently in discussions 

with FAA and Ancore’s parent company, OSI Systems, Inc., to conduct a 

joint demonstration. A total of $8 million in government funds has thus far 

been allocated for the demonstration—$4 million each from TSA and FAA 

with an additional $4 million to be provided by OSI Systems. TSA began 

the discussions in February 2004 and could not provide additional 

information at this time. TSA also stated that this demonstration is 

unrelated to a previous cooperative agreement it had made with Ancore to 

34 Senate Report 107-109, Department of Defense Appropriation Bill, 2002, and 

Supplemental Appropriations, 2002, December 5, 2001, page 155.

35 We reported in the August 2003 report that the operational test was scheduled for 

completion in June 2004. DOD stated that the completion date slipped to October 2004 

because the initial location selected at the Ysleta test site had to be changed, which resulted 

in additional costs and delaying the program until the required funds were identified. 

36 We reported in the August 2003 report that the estimated cost of the operational test was 

$13.9 million.

37 See Conference Report 108-401, Making Appropriations for Agriculture, Rural 

Development, Food and Drug Administration, and Related Agencies for the Fiscal Year 

Ending September 30, 2004, and for Other Purposes, November 25, 2003, page 926. 

Congress initially provided FAA $4 million in fiscal year 2004 to conduct the demonstration 

and directed it to provide a status report on the demonstration by July 1, 2004. However, 

according to TSA and FAA officials, FAA agreed to transfer both its $4 million and the 

responsibility of the PFNA demonstration to TSA since it no longer has authority over 

airport security. The FAA had been involved for several years with the PFNA program until 

TSA assumed responsibility of the program after its creation. 
Appendix III

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test PFNA in a laboratory for aviation applications, which could have led to 

an operational test at an airport, as we reported last year. TSA stated that it 

discontinued funding the cooperative agreement before systems 

development was completed.

One option is for the Congress to make further appropriations dependent 

upon a careful evaluation of the results of both the Ysleta land border 

crossing operational test and the Bush Intercontinental Airport 

demonstration. 

CBO said that it could not estimate the savings from this option, since it is 

subject to appropriation, which could be higher or lower, depending on the 

results of the evaluation.

Related GAO Product Terrorism and Drug Trafficking: Testing Status and Views on 

Operational Viability of Pulsed Fast Neutron Analysis Technology. 

GAO/GGD-99-54. Washington, D.C.: April 13, 1999.

GAO Contact Laurie E. Ekstrand, (202) 512-8777
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 136 GAO-04-649 Opportunities for Oversight

Close, Consolidate, or 

Privatize Some Coast 

Guard Operating and 

Training Facilities

The Coast Guard could achieve budget savings by downsizing its facilities. 

One such facility is the Curtis Bay facility, which the Coast Guard 

abandoned plans to close in 1988, when GAO reported that it lacked 

supporting data. While the cost effectiveness of this facility had been 

questioned, the Coast Guard had not conducted a detailed study to 

compare the facility’s cost effectiveness with that of commercial shipyards. 

A second group of facilities includes over 20 small boat stations, which in 

fiscal year 1996, GAO testified that if closed or consolidated, could save the 

Coast Guard $6 million. Third, GAO recommended in 1996 that the Coast 

Guard consider other alternatives—such as privatization—to operate its 

vessel traffic service centers, which cost $20.2 million to operate in fiscal 

year 1999. Furthermore, in fiscal year 1995, GAO recommended that the 

Coast Guard close one of its large training centers in Petaluma, Calif.—at a 

savings of $9 million annually. The Coast Guard agreed that this may be 

possible but did not close it largely because of public opposition.

Given the serious budget constraints the Coast Guard now faces and the 

fundamental challenges in being able to accomplish new homeland security 

responsibilities it has been given while maintaining levels of effort in its 

traditional missions, it will need to achieve significant budgetary savings to 

offset the increased budgetary needs of the future. Closing, consolidating, 

or privatizing training and operating facilities, including the Curtis Bay 

facility, 20 small boat stations, the vessel traffic service centers, and one of 

its training centers in Petaluma, Calif., would help the Coast Guard to 

achieve these required savings.

Although CBO agreed that this option would result in budgetary savings, it 

could not develop a savings estimate.

Primary agency Department of Homeland Security

Account United States Coast Guard (70-0600)

Spending type Discretionary 

Budget subfunctions Multiple

Theme Improve efficiency
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Related GAO Products Coast Guard: Challenges During the Transition to the Department of 

Homeland Security. GAO-03-594T. Washington, D.C.: April 1, 2003.

Coast Guard: Comprehensive Blueprint Needed to Balance and Monitor 

Resource Use and Measure Performance for All Missions. GAO-03-544T. 

Washington, D.C.: March 12, 2003. 

Coast Guard: Strategy Needed for Setting and Monitoring Levels of Effort 

for All Missions. GAO-03-155. Washington, D.C.: November 12, 2002.

Coast Guard: Budget Challenges for 2001 and Beyond. GAO/T-RCED-00-

103. Washington, D.C.: March 15, 2000.

Coast Guard: Review of Administrative and Support Functions. 

GAO/RCED-99-62R. Washington, D.C.: March 10, 1999.

Coast Guard: Challenges for Addressing Budget Constraints. GAO/RCED97-110. Washington, D.C.: May 14, 1997.

Marine Safety: Coast Guard Should Address Alternatives as It Proceeds 

With VTS 2000. GAO/RCED-96-83. Washington, D.C.: April 22, 1996.

Coast Guard: Issues Related to the Fiscal Year 1996 Budget Request. 

GAO/T-RCED-95-130. Washington, D.C.: March 13, 1995.

Coast Guard: Improved Process Exists to Evaluate Changes to Small Boat 

Stations. GAO/RCED-94-147. Washington, D.C.: April 1, 1994.

GAO Contact Margaret Wrightson, (415) 904-2200
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 138 GAO-04-649 Opportunities for Oversight

Convert Some Support 

Officer Positions to 

Civilian Status

The Coast Guard uses officers in operational positions—to command 

boats, ships, and aircraft that can be deployed during times of war—and in 

support positions, such as personnel, public affairs, data processing, and 

financial management. Military standard personnel costs are paid out of 

the Coast Guard’s discretionary budget and include all pay and allowances, 

permanent change of station costs, training costs, and active-duty medical 

costs associated with each pay grade. Certain allowances—housing and 

subsistence—are provided to military personnel tax free. Additionally, 

military retirement costs are funded by an annual permanent appropriation 

separate from the Coast Guard’s discretionary budget. Civilian standard 

personnel costs are also paid out of the Coast Guard’s discretionary budget 

and include basic, locality, overtime, and special pay as well as the costs 

associated with permanent change of station, training, health insurance, 

life insurance, and the accrued cost of civilian retirement.

Of 5,760 commissioned officer positions in the Coast Guard’s workforce (as 

of the end of fiscal year 1999), GAO selectively evaluated nearly 1,000 in 75 

units likely to have support positions. Of these positions, GAO found about 

800 in which officers were performing duties that offered opportunities for 

conversion to civilian positions. Such positions include those in, among 

other things, personnel, public affairs, civil rights, and data processing. In 

comparing all of the relevant costs associated with military and civilian 

positions, GAO found that employing active-duty commissioned officers in 

the positions we reviewed is, on average, 21 percent more costly than filling 

the same positions with comparable civilian employees. The cost 

differential is based on a comparison of average annual pay, benefits, and 

expenses associated with the Coast Guard’s commissioned officers at 

different military ranks and federal civilian employees at comparable 

civilian grades for fiscal year 1999.

Primary agency Department of Homeland Security

Account United States Coast Guard (70-0600)

Spending type Discretionary 

Budget subfunctions Multiple

Theme Improve efficiency
Appendix III

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From July 31, 2001 through February 28, 2003, the Coast Guard had 

converted 68 commissioned officer positions to civilian positions.

Converting support positions currently filled by military officers to civilian 

status would reduce costs associated with delivering these services with no 

apparent impact on performance. By converting commissioned officer 

positions to civilian positions, savings would accrue to the federal 

government in the form of retirement savings, tax advantage savings, and 

savings to the Coast Guard’s discretionary budget. 

Although CBO agreed that this option would result in budgetary savings, it 

could not develop a savings estimate.

Related GAO Product Coast Guard Workforce Mix: Phased-In Conversion of Some Support 

Officer Positions Would Produce Savings. GAO/RCED-00-60. Washington, 

D.C.: March 1, 2000.

GAO Contact Margaret Wrightson, (415) 904-2200
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 140 GAO-04-649 Opportunities for Oversight

Develop a Passenger 

Intercity Rail Policy to 

Meet National Goals

The National Railroad Passenger Corporation (Amtrak) operates the 

nation’s intercity passenger rail service. As a private corporation, it 

operates trains in 46 states, and, in fiscal year 2002, served about 23.4 

million riders (about 64,000 per day). Amtrak plays only a small part in the 

nation’s overall transportation system with the exception of some shortdistance routes. It has sizeable market shares (compared to travel by air) 

between certain relatively close cities. However, by far, the automobile 

dominates most intercity travel. Like major national intercity passenger 

rail systems outside the United States, Amtrak receives government 

support. Since Amtrak’s creation in 1970, the federal government has 

provided Amtrak with operating and capital assistance, and in the past 5 

years, it has provided Amtrak an average of about $1 billion each year.

Throughout its existence, Amtrak’s financial condition has never been 

strong, and the corporation has been on the edge of bankruptcy several 

times, most recently in 2002. Current levels of federal funding are not 

sufficient to support the existing level of intercity passenger rail service 

being provided by Amtrak. Amtrak has indicated that it will need about $2 

billion annually—about twice the amount provided in recent years—in 

federal operating and capital assistance over the next few years to stabilize 

its system and to cover operating losses. Additional assistance would be 

needed to expand or enhance service or develop high-speed rail corridors.

Amtrak and the administration have offered differing views on Amtrak and 

the future of intercity passenger rail service in America. Amtrak focuses 

primarily on the importance of Amtrak’s receiving the funding it needs to 

improve the condition of its equipment, its reliability and utilization, and its 

infrastructure. In contrast, the administration has proposed a fundamental 

restructuring of intercity passenger rail in the U.S. The administration’s 

proposal would transition the responsibility for Amtrak operations to the 

states. The federal government would support capital costs. States and 

Primary agency National Railroad Passenger Corporation

Accounts Multiple

Spending type Discretionary

Budget subfunction 401/Ground transportation

Theme Reassess objectives
Appendix III

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multi-state compacts would decide the type and amount of passenger rail 

service to be provided, and states would select operators for passenger 

trains based on competition. Various members of Congress have also 

proposed other legislative visions for intercity passenger rail. 

One option for the Congress is to develop a passenger intercity rail policy 

to meet national goals, based on an evaluation framework. In extensive 

analyses of federal investment approaches across a broad stratum of 

national activities, we have found that the key components of a framework 

for evaluating federal investments include (1) establishing clear, 

nonconflicting goals, (2) establishing the roles of governmental and private 

entities, (3) establishing funding approaches that focus on and provide 

incentives for results and accountability, and (4) ensuring that the 

strategies developed address diverse stakeholder interests and limit 

unintended consequences. 

CBO was not able to estimate the budgetary savings of this option.

Related GAO Products Intercity Passenger Rail: Issues for Consideration in Developing an 

Intercity Passenger Rail Policy. GAO-03-712T. Washington, D.C.: April 30, 

2003.

Intercity Passenger Rail: Potential Financial Issues in the Event That 

Amtrak Undergoes Liquidation. GAO-02-871. Washington, D.C.: 

September 20, 2002.

Intercity Passenger Rail: Amtrak Needs to Improve Its Decisionmaking 

Process for Its Route and Service Proposals. GAO-02-398. Washington, 

D.C.: April 12, 2002.

Intercity Passenger Rail: Congress Faces Critical Decisions in 

Developing a National Policy. GAO-02-522T. Washington, D.C.: April 11, 

2002.

GAO Contact JayEtta Z. Hecker, (202) 512-8984
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 142 GAO-04-649 Opportunities for Oversight

Eliminate Cargo 

Preference Laws to 

Reduce Federal 

Transportation Costs

Cargo preference laws require that certain government-owned or financed 

cargo shipped internationally be carried on U.S.-flagged vessels. Cargo 

preference laws are intended to guarantee a minimum amount of business 

for the U.S.-flagged vessels. These vessels are required by law to be crewed 

by U.S. mariners, are generally required to be built in U.S. shipyards, and 

are encouraged to be maintained and repaired in U.S. shipyards. In 

addition, U.S.-flag carriers commit to providing capacity in times of 

national emergencies.

The effect of cargo preference laws has been mixed. These laws appear to 

have had a substantial impact on the U.S. merchant marine industry by 

providing an incentive for vessels to remain in the U.S. fleet. However, 

because U.S.-flagged vessels often charge higher rates to transport cargo 

than foreign-flagged vessels, cargo preference laws increase the 

government’s transportation costs. Our work showed that four federal 

agencies—the Departments of Defense, Agriculture, Energy, and the 

Agency for International Development—were responsible for almost all of 

the government cargo subject to cargo preference laws and that these laws 

increased these agencies’ transportation costs substantially. In recent 

years, the Office of Management and Budget’s Program Assessment Rating 

Tool summaries have stated that the Public Law 480 Title II food aid 

program would be more cost effective if these laws were eliminated, 

because they increase delivery cost and time.

CBO estimates the following budget savings if cargo preference laws were 

eliminated.

Primary agencies Multiple 

Accounts Multiple 

Spending type Discretionary 

Budget subfunction 403/Water transportation

Theme Reassess objectives
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Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Management Reform: Implementation of the National Performance 

Review’s Recommendations. GAO/OCG-95-1. Washington, D.C.: December 

5, 1994.

Maritime Industry: Cargo Preference Laws—Their Estimated Costs and 

Effects. GAO/RCED-95-34. Washington, D.C.: November 30, 1994.

Cargo Preference: Effects of U.S. Export-Import Cargo Preference Laws 

on Exporters. GAO/GGD-95-2BR. Washington, D.C.: October 31, 1994.

Cargo Preference Requirements: Objectives Not Significantly Advanced 

When Used in U.S. Food Aid Programs. GAO/GGD-94-215. Washington, 

D.C.: September 29, 1994.

GAO Contacts Loren Yager, (202) 512-4347

Phil Thomas, (202) 512-9892

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Change from the 2004 funding level

Budget authority 294 377 465 473 481

Outlays 248 354 441 465 476
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 144 GAO-04-649 Opportunities for Oversight

Increase Aircraft 

Registration Fees to 

Enable the Federal 

Aviation 

Administration to 

Recover Actual Costs

In 1977, the Congress amended the Federal Aviation Act and identified 

three categories of aircraft owners—U.S. citizens, resident aliens, and U.S.-

based foreign companies—that may register aircraft in the United States. 

To register an aircraft, an eligible owner submits a $5 fee. As of the end of 

fiscal year 2003, 334,594 aircraft were registered in the United States. In 

fiscal year 2003, 61,074 certificate registrations were issued.

In 1993, we reported that the Federal Aviation Administration (FAA) was 

not fully recovering the cost of processing aircraft registration applications 

and estimated that, by not increasing fees since 1968 to recover costs, FAA 

had foregone about $6.5 million in additional revenue. To recover the costs 

of services provided to aircraft registrants, we have recommended that 

FAA increase its aircraft registration fees to more accurately reflect actual 

costs. FAA plans to coordinate aircraft registration changes with the Drug 

Enforcement Agency and the U.S. Customs Service by the end of 2004. If 

those two agencies approve the proposed changes, FAA will prepare 

legislation for congressional approval for a rate increase for registration 

fees. FAA plans to complete changes to its aircraft registration system by 

mid-2005.

CBO estimates additional revenue could be achieved if the FAA recovers 

the full cost of processing aircraft registration applications.

Five-Year Savings

Source: Congressional Budget Office.

Primary agency Department of Transportation

Spending type Direct

Theme Redefine beneficiaries

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Added collections 5 5 5 5 5
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Related GAO Product Aviation Safety: Unresolved Issues Involving U.S.-Registered Aircraft. 

GAO/RCED-93-135. Washington, D.C.: June 18, 1993.

GAO Contact Gerald Dillingham, (202) 512-4803
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 146 GAO-04-649 Opportunities for Oversight

Improve the 

Coordination of 

Transportation 

Services for 

TransportationDisadvantaged 

Populations

The ability to access personal or public transportation is fundamental for 

people to connect with employment opportunities, health and medical 

services, educational services, and the community at large. However, 

transportation-disadvantaged persons—those who may have an age-related 

condition, a disability, or income constraints—lack the ability to provide 

their own transportation or have difficulty accessing whatever 

conventional public transportation may be available. This is a sizeable 

group; according to the 2000 U.S. Census, 35.1 million people were over the 

age of 65, 44.5 million were over age 21 and disabled, and 33.9 million 

people were living below the poverty line. 

Providing transportation services to these populations and coordinating 

them across program lines are becoming more critical issues as the 

transportation-disadvantaged populations grow and financial constraints 

on the federal government and other government levels increase. With 

these trends, it will become more important to maximize efficiency 

wherever possible to avoid having to reduce services. The coordination of 

transportation services—through pooling resources, consolidating 

transportation services under a single state or local agency, or sharing 

information about available services—has been found to improve the costeffectiveness and quality of service. At the state and local levels, some 

agencies have realized substantial benefits by coordinating their 

transportation services while others that do not coordinate have 

experienced overlapping, fragmented, or confusing services. In locations 

where coordination among programs has occurred, agencies and users are 

realizing significant benefits such as improved customer service. In areas 

without coordination, local officials reported some examples of 

(1) overlapping services, such as the transportation provider who often 

runs two vehicles on the same route at nearly the same time to 

accommodate different paperwork requirements; (2) fragmented services, 

when transportation services by different counties or programs do not 

Primary agency Multiple

Accounts Multiple

Spending type Direct/Discretionary

Budget subfunction Multiple

Theme Improve efficiency
Appendix III

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connect and riders have difficulty scheduling complete trips; and 

(3) confusion, when both providers and users are overwhelmed by the 

sheer number of programs and their different requirements. 

Although decision makers face numerous obstacles in trying to coordinate 

transportation services for the transportation-disadvantaged, GAO 

identified several options to mitigate the obstacles and improve 

coordination among federal, state, and local agencies. We grouped the 

obstacles into three categories: (1) reluctance to share vehicles and fund 

coordination activities due to concerns about possible adverse effects on 

clients; (2) different eligibility requirements, safety standards, and other 

programmatic requirements that can limit programs’ ability to share 

transportation resources; and (3) lack of leadership and commitment to 

coordinate, as evidenced by the limited guidance and information provided 

by federal and state agencies on the possible techniques for coordinating 

services. The options for addressing these obstacles include:

• Harmonizing program standards among federal programs so that 

programs can serve additional populations or better share 

transportation resources, e.g., providing more flexible regulatory 

language that would allow providers to serve additional client groups, 

developing consistent cost accounting methods, and adopting common 

safety standards.

• Expanding interagency forums that would facilitate communication 

among agencies involved in coordination efforts and sharing additional 

technical guidance and information on coordination among federal and 

state agencies through a central clearinghouse or improved Web site.

• Providing financial incentives or mandates that would give priority in 

federal funding to those grant applicants that show a strong 

commitment to coordinate or requiring specific coordination efforts 

among grant recipients as a condition of receiving federal funding.

CBO could not estimate a budget savings for this option.

Related GAO Products Transportation-Disadvantaged Populations: Some Coordination Efforts 

Among Programs Providing Transportation Services, but Obstacles 

Persist. GAO-03-697. Washington, D.C.: June 30, 2003.
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 148 GAO-04-649 Opportunities for Oversight

Transportation-Disadvantaged Populations: Many Federal Programs 

Fund Transportation Services, but Obstacles to Coordination Persist. 

GAO-03-698T. Washington, D.C.: May 1, 2003.

Transportation Coordination: Benefits and Barriers Exist, and Planning 

Efforts Progress Slowly. GAO/RCED-00-1. Washington, D.C.: October 22, 

1999.

Hindrances to Coordinating Transportation of People Participating in 

Federally Funded Grant Programs: Volume I. GAO/RCED-77-119. 

Washington, D.C.: October 17, 1977.

GAO Contact Kate Siggerud, (202) 512-6570
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 149 GAO-04-649 Opportunities for Oversight

450 Community and 

Regional Development

Eliminate the Flood Insurance Subsidy on Properties That Suffer the 

Greatest Flood Loss

Eliminate Flood Insurance for Certain Repeatedly Flooded Properties

Reduce or Eliminate the Trade Adjustment Assistance Program for Firms 

and Industries

Improve Federal Foreclosure and Property Sales Processes
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 150 GAO-04-649 Opportunities for Oversight

Eliminate the Flood 

Insurance Subsidy on 

Properties That Suffer 

the Greatest Flood 

Loss

The National Flood Insurance Program is not actuarially sound because 

approximately 30 percent of the 4.3 million policies in force are subsidized. 

Federal Insurance Administration officials estimate that total premium 

income from subsidized policyholders is about $500 million less than it 

would be if these rates had been actuarially based and participation had 

remained the same. According to a Federal Insurance Administration 

official, if true actuarial rates were charged, insurance rates on currently 

subsidized policies would need to rise, on average, slightly more than 

twofold (to an annual average premium of about $1,500 to $1,600). 

Significant rate increases for subsidized policies, including charging 

actuarial rates, would likely cause some owners of properties built before 

the publication of the Flood Insurance Rate Map to cancel their flood 

insurance. However, the ultimate cost or savings to the federal government 

would depend on the actions of property owners. If these property owners, 

who suffer the greatest flood loss, canceled their insurance and 

subsequently suffered losses due to future floods, they could apply for lowinterest loans from the Small Business Administration or grants from 

Federal Emergency Management Agency (FEMA), which would increase 

the overall cost to the federal government.

FEMA received a May 1999 contractor’s study concerning the economic 

effects of eliminating subsidized rates, and in June 2000 the agency 

transmitted the study to the Congress with recommendations for reducing 

the subsidy. According to FEMA, it is analyzing the impacts of specific 

alternatives for carrying out the recommendations, as well as working with 

stakeholders to refine and develop a comprehensive strategy to help it 

decide how to implement the study’s recommendations. Some of the 

recommendations for reducing the subsidy depend on legislative change. 

In light of the potential savings associated with addressing this issue, 

FEMA should develop and advance legislative options for eliminating the 

Primary agency Department of Homeland Security

Account National Flood Insurance (70-4236)

Spending type Direct

Budget subfunction 453/Disaster relief and insurance

Theme Redefine beneficiaries
Appendix III

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Efficiency, and Effectiveness of Federal 

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National Flood Insurance Program’s subsidy for properties that are more 

likely to suffer losses.

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products National Flood Insurance Program: Actions to Address Repetitive Loss 

Properties. GAO-04-401T. Washington, D.C.: March 25, 2004.

Flood Insurance: Information on Financial Aspects of the National Flood 

Insurance Program. GAO/T-RCED-00-23. Washington, D.C.: October 27, 

1999.

Flood Insurance: Information on Financial Aspects of the National Flood 

Insurance Program. GAO/T-RCED-99-280. Washington, D.C.: August 25, 

1999.

Flood Insurance: Financial Resources May Not Be Sufficient to Meet 

Future Expected Losses. GAO/RCED-94-80. Washington, D.C.: March 21, 

1994.

GAO Contact William Jenkins, Jr., (202) 512-8757

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Net increase in offsetting receipts 

Budget authority

Outlays (net increased receipts) -49 -147 -193 -190 -188
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 152 GAO-04-649 Opportunities for Oversight

Eliminate Flood 

Insurance for Certain 

Repeatedly Flooded 

Properties

Repetitive flood losses are one of the major factors contributing to the 

financial difficulties facing the National Flood Insurance Program (NFIP). 

A repetitive-loss property is one that has two or more losses greater than 

$1,000 each within any 10-year period. In 2002, approximately 45,000 

buildings insured under the NFIP have been flooded on more than one 

occasion and have received flood insurance claims payments of $1,000 or 

more for each loss. As we reported in July 2001, these repetitive losses 

account for about 38 percent of all program claims historically (about $200 

million annually) even though repetitive-loss structures make up a very 

small portion of the total number of insured properties—at any one time, 

from 1 to 2 percent. The cost of these multiple-loss properties over the 

years to the program has been $3.8 billion. Under its repetitive-loss 

strategy, the Federal Insurance Administration intends to target for 

mitigation the most flood-prone repetitive-loss properties, such as those 

that are currently insured and have had four or more losses, by acquiring, 

relocating, or elevating them. The Federal Emergency Management 

Agency (FEMA) reports NFIP paid out over $800 million in claims for the 

most vulnerable repetitive loss properties (about 10,000) over the last 21 

years.

One option that would increase savings would be for FEMA to consider 

eliminating flood insurance for certain repeatedly flooded properties. In its 

fiscal year 2002 budget proposal, FEMA requested to transfer $20 million in 

fees from the NFIP to increase the number of buyouts of properties that 

suffer repetitive losses.

CBO estimates the following budgetary savings with this option.

Primary agency Department of Homeland Security

Account National Flood Insurance (70-4236)

Spending type Direct

Budget subfunction 453/Disaster relief and insurance

Theme Redefine beneficiaries
Appendix III

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Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Flood Insurance: Information on the Financial Condition of the National 

Flood Insurance Program. GAO-01-992T. Washington, D.C.: July 19, 2001.

Flood Insurance: Information on Financial Aspects of the National Flood 

Insurance Program. GAO/T-RCED-00-23. Washington, D.C.: October 27, 

1999.

Flood Insurance: Information on Financial Aspects of the National Flood 

Insurance Program. GAO/T-RCED-99-280. Washington, D.C.: August 25, 

1999.

GAO Contact William Jenkins, Jr., (202) 512-8757 

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Change from the CBO baseline 

Budget authority 0 0 0 0 0

Outlays 58 62 67 72 77
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

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Reduce or Eliminate 

the Trade Adjustment 

Assistance Program for 

Firms and Industries

The Trade Adjustment Assistance Program for Firms and Industries is 

designed to assist domestic firms that have been adversely affected by 

imports. The Department of Commerce’s Economic Development 

Administration (EDA) administers the program. EDA is responsible for 

certifying firms’ eligibility to receive assistance and approving the certified 

firms’ business plans for economic recovery. Twelve regional centers help 

firms prepare petitions for certification, assess their economic viability, 

develop business recovery plans, and fund and oversee consultants’ efforts 

to implement the business recovery plans. In 2002, Congress extended the 

Trade Adjustment Assistance Program through fiscal year 2007 at an 

authorized annual funding level of $16 million. The President’s fiscal year 

2003 budget request was for $13 million.

Between fiscal years 1995 and 1999, EDA annually certified an average of 

157 firms as eligible for assistance38 (about 13 per regional center) and 127 

firms had certified recovery plans (about 11 per regional center). During 

this period, most Trade Adjustment Assistance Program funding—61 

percent—was used to fund operational and administrative costs at the 12 

regional centers, including helping firms become certified for assistance 

and developing firm-specific business recovery plans. The remainder of 

the program funding—an annual average of $3.8 million, or approximately 

39 percent of the total—was used to fund technical assistance to 

implement the business recovery plans.

Primary agency Department of Commerce

Account Economic Development Assistance 

Programs (13-2050)

Spending type Discretionary

Budget subfunction 452/Area and regional development

Theme Reassess objectives

38 At the time of certification, firms had annual sales that ranged from $1,563 to more than 

$219 million, with median sales of $3.2 million. The number of employees ranged from 1 to 

more than 3,000, but the median number was 45. About half of these firms came from four 

industries—industrial machinery and computers (14 percent), electronic equipment (13 

percent), apparel manufacturers (12 percent), and fabricated metals (10 percent).
Appendix III

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Efficiency, and Effectiveness of Federal 

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In December 2000, we reported that the impact of the Trade Adjustment 

Assistance Program was unclear. EDA had not developed appropriate 

outcome measures to demonstrate the program’s value in achieving its goal 

of assisting firms adversely affected by imports and did not formally 

monitor and track program outcomes for program recipients. In April 2003, 

the Congressional Research Service reported that evaluation of the 

program had been largely inconclusive. An independent study suggested 

that the Trade Adjustment Assistance Program had been helpful to firms at 

the margin; however, this study had several flaws that may have biased its 

results. EDA added new performance measures for the Trade Adjustment 

Assistance Program for fiscal year 2003 to better track outcomes of the 

assistance provided by the regional centers. However, we have not 

evaluated whether these new measures are sufficient to assess how the 

program is helping firms adjust to import competition.

Given the low percentage of program funds used to implement the business 

recovery plans and the lack of information about the program’s impact, 

Congress may wish to consider several options for this program:

• Direct the Commerce Department to consolidate the 12 regional centers 

to reduce administrative and overhead costs.

• Direct the Commerce Department to co-locate the regional centers with 

other programs (such as the department’s Manufacturing Extension 

Partnership) to reduce administrative and overhead costs and provide 

some synergy with other federal efforts to assist firms.

• Reduce or eliminate the Trade Adjustment Assistance Program.

CBO estimates that the following budgetary savings would occur if the 

Congress chooses to terminate the program.
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 156 GAO-04-649 Opportunities for Oversight

Five-Year Savingsa

Source: Congressional Budget Office.

a

Estimate reflects savings if the Trade Adjustment Assistance Program is eliminated.

Related GAO Product Trade Adjustment Assistance: Impact of Federal Assistance to Firms Is 

Unclear. GAO-01-12. Washington, D.C.: December 15, 2000.

GAO Contacts Loren Yager, (202) 512-4347

Phil Herr, (202) 512-8509

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the 2004 funding level

Budget authority 12 12 13 13 13

Outlays 1 4 7 10 12
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 157 GAO-04-649 Opportunities for Oversight

Improve Federal 

Foreclosure and 

Property Sales 

Processes

Opportunities exist to reduce the time necessary to sell foreclosed 

properties and minimize costs to the federal government. Federal 

programs in the Department of Housing and Urban Development’s Federal 

Housing Administration (FHA), the Department of Veterans Affairs (VA), 

and the Department of Agriculture’s Rural Housing Service (RHS) promote 

mortgage financing for, among other groups, low-income, first-time, 

minority, veteran, and rural home buyers. Fannie Mae and Freddie Mac are 

private corporations chartered by the Congress that also promote mortgage 

financing and home ownership opportunities. Although these programs 

have expanded home ownership opportunities, many home owners fall 

behind in their mortgage payments each year due to unemployment, health 

problems, or the death of a provider. When mortgage lenders cannot assist 

home owners in meeting their payments, FHA, VA, RHS, Fannie Mae, and 

Freddie Mac (the organizations) may instruct the lenders to begin 

foreclosure proceedings. Once foreclosure proceedings have been 

initiated, it is generally in the best interests of the organizations and 

communities that foreclosed properties are adequately maintained and 

resold as quickly as feasible. Otherwise, property conditions can 

deteriorate, thereby resulting in lower sales prices, which could limit the 

government’s ability to recover the costs that it incurs.39 In addition, vacant 

and poorly maintained properties that are on the market for extended 

periods contribute to neighborhood decay.

Primary agencies Department of Housing and Urban 

Development

Department of Veterans Affairs

Accounts Multiple 

Spending types Direct/Discretionary

Budget subfunctions Multiple 

Theme Improve efficiency

39Generally, FHA, VA, and RHS pay claims to mortgage servicers to cover the outstanding 

loan balances on foreclosed mortgages and interest and other expenses. If foreclosed 

properties are resold at relatively low prices, then the organizations’ ability to recover their 

claim payments may be limited.
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

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FHA procedures can delay the initiation of critical steps necessary to 

preserve the value of foreclosed properties and to sell them quickly. While 

Fannie Mae, Freddie Mac, VA, and RHS designate one entity as responsible 

for the custody, maintenance, and sale of foreclosed properties, FHA 

divides these responsibilities between its mortgage servicers and 

management and marketing contractors. We found that FHA’s divided 

approach to foreclosed property custody can prevent the initiation of 

critical maintenance necessary to make properties attractive to potential 

buyers, such as the timely removal of all exterior and interior debris, and 

results in disputes between servicers and contractors. Because FHA’s 

divided approach delays maintenance and other steps necessary to 

preserve the value and marketability of foreclosed properties, the 

properties may be sold at lower prices than would otherwise be the case. 

In fact, we estimated that FHA takes about 55 to 110 days longer to sell 

foreclosed properties than the other organizations. In a June 2003 

conversation, an FHA official said that the agency continues to consider 

unified custody as the best means of managing its inventory of foreclosed 

properties. Given legal and other complexities associated with changing its 

approach to selling foreclosed properties, FHA does not expect to 

complete its ongoing review of the best means of implementing unified 

custody until October 2004.

FHA and VA together spent about $31.5 million in 2000 on new title 

insurance policies to help establish that they had clear title to foreclosed 

properties, while Fannie Mae, Freddie Mac, and RHS generally did not 

purchase new title insurance policies. Neither FHA nor VA collects data to 

determine the need for these expenditures, and available information 

suggests they are not cost effective. In 1995, VA’s Office of Inspector 

General (OIG) issued a report that questioned whether VA’s title insurance 

expenditures offered value to the government, and VA has not implemented 

recommendations contained in the report to assess the expenditures’ cost 

effectiveness. In addition, Fannie Mae, Freddie Mac, and RHS report few 

title-related problems when they sell foreclosed properties. We 

recommended that FHA and VA collect additional data and reevaluate the 

cost effectiveness of their title insurance expenditures. In a June 2003 

conversation, an FHA official said that FHA expects to complete its review 

of purchasing title insurance during the foreclosure process by October 

2004. In a December 2003 conversation, a VA official said that the 

department expects to complete its review in early calendar year 2004.

As an option, Congress may wish to consider enacting legislation to 

establish unified custody as a priority for the sale of foreclosed properties 
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 159 GAO-04-649 Opportunities for Oversight

that FHA takes into its inventory and directing the agency to complete its 

review of the best means of implementing unified custody by the close of 

fiscal year 2004.

As an option, Congress may wish to consider enacting legislation directing 

FHA and VA to complete their ongoing reviews of the cost effectiveness of 

purchasing new title insurance policies during the foreclosure process by 

the close of fiscal year 2004.

CBO was not able to determine if this option would result in a budget 

savings.

Related GAO Product Single-Family Housing: Opportunities to Improve Federal Foreclosure 

and Property Sales Processes. GAO-02-305. Washington, D.C.: April 17, 

2002.

GAO Contact Thomas J. McCool, (202) 512-8678
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 160 GAO-04-649 Opportunities for Oversight

500 Education, 

Training, Employment, 

and Social Services

Improve Targeting of Title I Basic Grants

Change Borrower Interest Rate on Federal Consolidation Loans From 

Fixed to Variable
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 161 GAO-04-649 Opportunities for Oversight

Improve Targeting of 

Title I Basic Grants

Title I is the largest federal program supporting elementary and secondary 

education. While state and local funds account for the vast majority of 

total education expenditures nationally, Title I is an important source of 

funding for many high-poverty districts and schools. Created in 1965 as 

part of the War on Poverty, Title I is designed to help educate 

disadvantaged children—those with low academic achievement attending 

schools serving high-poverty areas.

To distribute Title I funds to school districts, the law authorizing the 

program provides for several types of grants; “basic grants,” however, are 

the primary vehicle for Title I funding and are the easiest grants for which 

school districts can qualify. Districts are eligible for basic grants if they 

have at least 10 poor children and the number of poor children is more than 

2 percent of the district’s school-age children. Nationally, about 92 percent 

of school districts (containing over 99 percent of poor children) received 

basic grants in fiscal year 1999, accounting for about 85 percent of total 

Title I funds.

Title I grants have sometimes been criticized because the poverty threshold 

for basic grant eligibility is so low that nearly all school districts can 

participate in the program. It is often noted that by funding nearly all 

districts, less funding is available for districts with higher concentrations of 

poverty. One policy option to further target funding for higher poverty 

districts would be to raise the basic grant eligibility threshold, making 

fewer districts eligible. With fewer districts eligible, the remaining districts 

would receive more funds per poor child, even if total Title I funding were 

to remain constant. Another policy option would be to raise the basic 

grant eligibility threshold, but redistribute only half of the funds resulting 

from fewer districts being eligible, while reducing federal expenditures by 

retaining the remaining funds. Yet another option would be to raise the 

Primary agency Department of Education

Account Education for the disadvantaged (10-900)

Spending type Discretionary

Budget subfunction 501/Elementary, secondary, and vocational 

education

Theme Redefine beneficiaries
Appendix III

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Efficiency, and Effectiveness of Federal 

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basic grant eligibility threshold without redistributing any of the funds 

obtained from doing so. We reported in 2002 that increasing the poverty 

threshold for basic grant eligibility from 2 to 10 percent would reduce the 

percentage of school districts qualifying for basic grants from 92 to 74 

percent of school districts nationwide. Such an increase in the eligibility 

threshold would have generated over $570 million, which could have been 

used to redistribute to school districts remaining eligible for Title I basic 

grants and/or to reduce federal expenditures. 

CBO estimates no budgetary savings from this option with a decrease in 

appropriation.

Related GAO Product Title I Funding: Poor Children Benefit Though Funding Per Poor Child 

Differs. GAO-02-242. Washington, D.C.: January 31, 2002.

GAO Contact Marnie S. Shaul, (202) 512-7215
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 163 GAO-04-649 Opportunities for Oversight

Change Borrower 

Interest Rate on 

Federal Consolidation 

Loans From Fixed to 

Variable

Student consolidation loans, available under the Department of 

Education’s two major student loan programs—the Federal Family 

Education Loan Program (FFELP) and the William D. Ford Federal Direct 

Loan Program (FDLP)—were created to help borrowers cope with large 

amounts of federal student loan debt. Consolidation loans allow borrowers 

to combine loans, extend their repayment period, and reduce monthly 

repayments, thereby helping to reduce the government’s costs of paying for 

defaults. Consolidation loans also allow borrowers to lock in a fixed 

interest rate, unlike most other federal student loans, which carry an 

interest rate that varies from year to year. Between fiscal year 2000 and 

2002, the number of borrowers consolidating their federal student loans 

nearly doubled to almost 1 million, and the total amount of loans being 

consolidated rose from $12 billion to over $31 billion. Lower interest rates 

and the increased consolidation loan volumes of recent years have 

increased the estimated long-term cost—or subsidy cost—to the 

government of guaranteeing FFELP consolidation loans. The estimated 

subsidy costs for FFELP consolidation loans grew from $1.3 billion for 

loans made in fiscal year 2002 to nearly $3 billion for loans made in fiscal 

year 2003. Interest rates and loan volume also affected costs for FDLP 

consolidation loans by reducing the net gain to the government to $286 

million for loans made in fiscal year 2003, down from $460 million the year 

before. 

The surge in the number of borrowers consolidating their loans suggests 

that many borrowers who face little risk of default are choosing 

consolidation as a way of obtaining low fixed interest rates. If borrowers 

continue to consolidate their loans in the current low interest rate 

environment, and interest rates rise, the government will continue to 

Primary agency Department of Education

Account Federal Family Education Loan Program

(91-0231)

Federal Direct Student Loan Program

(91-0243)

Spending type Direct

Budget subfunction 502/Higher education

Theme Improve efficiency
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 164 GAO-04-649 Opportunities for Oversight

assume relatively high subsidy costs for FFELP consolidation loans due to 

the payments the government must make to lenders to ensure their 

statutorily guaranteed rate of return on the loans they make. (Lenders’ 

guaranteed rates of return vary, based on prevailing market interest rates 

and are projected to be higher in the future.) Providing for higher subsidy 

costs for consolidation loans may outweigh any government savings 

associated with the reduced costs of loan defaults for the smaller number 

of borrowers who might default in the absence of the repayment flexibility 

offered by consolidation loans.

One option for the Congress is to change the interest charged to borrowers 

on consolidation loans from a fixed to a variable rate that is consistent with 

the interest rates carried by most other federal student loans—which 

underlie borrowers’ consolidation loans. Such an option might reduce 

overall federal costs by reducing the volume and subsidy costs of 

consolidation loans. When low fixed interest rates are no longer an option 

on consolidation loans, borrowers who are not experiencing difficultly in 

managing their student loan debt would have less incentive to consolidate 

their loans.40 For borrowers who are, however, experiencing difficulties in 

paying their student loans and at risk of default, the program would 

continue to be an important tool to help them manage their educational 

debt by consolidating multiple loan repayments into one and extending 

their repayment term, thereby reducing their monthly repayments. 

CBO was not able to determine if this option would result in a budget 

savings.

40Under current law, borrower interest rates on Stafford loans—which comprise the 

majority of student loans underlying consolidation loans—originated on or after July 1, 2006 

will carry a fixed borrower interest rate of 6.8 percent. Presently, borrower interest rates on 

Stafford loans are variable and based on a statutorily established market-indexed rate 

setting formula, while borrower interest rates on consolidation loans are determined by 

taking the weighted average of the interest rates in effect on the loans being consolidated 

rounded up to the nearest one-eighth of 1 percent. Unless current law is changed, future 

borrowers with fixed-rate Stafford loans will have less of an interest rate incentive to obtain 

consolidation loans. However, borrowers who will have obtained loans prior to July 1, 2006 

may still have an interest rate incentive to obtain consolidation loans beyond July 1, 2006. 

Further, in this fiscal year 2005 budget request, the President has proposed eliminating the 

scheduled interest rate change for Stafford loans and maintaining the variable interest rate 

formula.
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 165 GAO-04-649 Opportunities for Oversight

Related GAO Product Student Loan Programs: As Federal Costs of Loan Consolidation Rise, 

Other Options Should be Examined. GAO-04-101. Washington, D.C.: 

October 31, 2003.

GAO Contact Cornelia M. Ashby, (202) 512-8403
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 166 GAO-04-649 Opportunities for Oversight

550 Health Improve Fairness of Medicaid Matching Formula

Prevent States from Using Illusory Approaches to Shift Medicaid Program 

Costs to the Federal Government

Control Provider Enrollment Fraud in Medicaid

Eliminate Federal Funding for SCHIP Covering Adults without Children

Charge Beneficiaries for Food Inspection Costs

Redirect Carcass-by-Carcass Inspection Resources in Meat and Poultry 

Plants

Create a Uniform Federal Mechanism for Food Safety
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 167 GAO-04-649 Opportunities for Oversight

Improve Fairness of 

Medicaid Matching 

Formula

The Medicaid program provides medical assistance to individuals who are 

low-income, aged, blind, or disabled. The federal government and the 

states share the financing of the program through an open-ended matching 

grant whereby federal outlays rise with the cost and use of Medicaid 

services. The federal share of the program costs varies inversely with state 

per capita income. Consequently, high-income states pay a larger share of 

the benefits than low-income states. By law, the federal share can be no 

less than 50 percent and no more than 83 percent.

Since 1986, we have issued numerous reports and testimonies that identify 

ways in which the fairness of federal grant formulas could be improved. 

With respect to Medicaid, we believe that the fairness of the matching 

formula in the open-ended program could be improved by replacing the per 

capita income factor with four factors—the number of people living below 

the official poverty line, the total taxable resources of the state, cost 

differences associated with the demographic composition of state 

caseloads, and differences in health care costs across states. These 

changes could redirect federal funding to states with the highest 

concentration of people in poverty and the least capability of funding these 

needs from state resources.

CBO was not able to determine if this option would result in a budget 

savings.

Related GAO Products Medicaid Formula: Differences in Funding Ability among States Often 

Are Widened. GAO-03-620. Washington, D.C.: July 10, 2003.

Medicaid Formula: Effects of Proposed Formula on Federal Shares of 

State Spending. GAO/HEHS-99-29R. Washington, D.C.: February 19, 1999.

Primary agency Department of Health and Human Services

Account Grant to States for Medicaid (75-0512)

Spending type Direct

Budget subfunction 551/Health care services

Theme Reassess objectives
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 168 GAO-04-649 Opportunities for Oversight

Medicaid Matching Formula: Effects of Need Indicators on New York’s 

Funding. GAO/HEHS-97-152R. Washington, D.C.: June 9, 1997.

Medicaid: Matching Formula’s Performance and Potential Modifications. 

GAO/T-HEHS-95-226. Washington, D.C.: July 27, 1995.

Medicaid Formula: Fairness Could Be Improved. GAO/T-HRD-91-5. 

Washington, D.C.: December 7, 1990.

GAO Contact Kathryn G. Allen, (202) 512-7114
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 169 GAO-04-649 Opportunities for Oversight

Prevent States from 

Using Illusory 

Approaches to Shift 

Medicaid Program 

Costs to the Federal 

Government

Since 1993, we have reported on a number of state financing schemes that 

inappropriately shift Medicaid costs to the federal government. In an early 

report, we documented that Michigan, Texas, and Tennessee used illusory 

financing approaches to obtain about $800 million in federal Medicaid 

funds without effectively committing their share of matching funds. Under 

these approaches, facilities that received increased Medicaid payments 

from the states, in turn, paid the states almost as much as they received. 

Consequently, the states realized increased revenue that was used to 

reduce their state Medicaid contributions, fund other health care needs, 

and supplement general revenue funding. For the period from fiscal year 

1991 to fiscal year 1995, Michigan alone reduced its share of Medicaid costs 

by almost $1.8 billion through financing partnerships with medical 

providers and local units of government. Our analysis of Michigan’s 

transactions showed that even though legislation curtailed certain creative 

financing practices, the state was able to reduce its share of Medicaid costs 

at the expense of the federal government by $428 million through other 

mechanisms. We subsequently reported on similar schemes involving state 

psychiatric hospitals and local government facilities, such as county 

nursing homes.

The state schemes that involve excessive federal payments have been 

restricted by (1) the Omnibus Budget Reconciliation Act of 1993, which 

limits such payments to unreimbursed Medicaid and uninsured costs for 

state-owned facilities, (2) the Balanced Budget Act of 1997, which further 

limits Medicaid payments to state psychiatric hospitals, and (3) the 

Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 

of 2000,41 which directed the Health Care Financing Administration (HCFA) 

Primary agency Department of Health and Human Services 

Account Grants to States for Medicaid (75-0512)

Spending type Direct

Budget subfunction 551/Health care services

Theme Redefine beneficiaries

41SCHIP is the State Children’s Health Insurance Program.
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 170 GAO-04-649 Opportunities for Oversight

to issue a final regulation that further curtailed states’ ability to claim 

excessive federal matching funds through financing schemes, which HCFA, 

now called the Centers for Medicare & Medicaid Services (CMS), did in 

January 2001. 

Despite these legislative and regulatory restrictions, our ongoing work has 

demonstrated that some states continue to benefit from financing schemes 

to draw down federal Medicaid payments that substantially exceed costs. 

Moreover, while CMS has taken steps to strengthen its oversight of states’ 

financing arrangements, these steps have not gone far enough to ensure 

that federal funds are used for the purposes for which Medicaid funds are 

intended. For example, a 2001 regulation limited the use of these 

arrangements and provided for transition periods for states to phase out 

their excessive claims for federal matching funds. Our ongoing work has 

found that CMS’s decisions to grant 8-year transition periods to two states 

with nursing home arrangements were not consistent with the stated 

purpose of the agency’s regulation intended to curtail these financing 

schemes. We are also currently examining the extent to which states are 

hiring private consulting firms to inappropriately maximize federal 

reimbursement through the Medicaid program. 

We believe that the Medicaid program should not allow states to benefit 

from illusory arrangements and that Medicaid funds should only be used to 

help cover the costs of medical care incurred by those medical facilities 

that provide care to Medicaid beneficiaries. We believe the Congress 

should continue its legislative efforts to minimize the likelihood that states 

can develop arrangements that claim excessive federal Medicaid payments 

and that inappropriately shift Medicaid costs to the federal government. 

Specifically, the Congress should consider legislation that would prohibit 

Medicaid payments that exceed costs to any government-owned facility.

Savings are difficult to estimate for this option because national data on 

these practices are not readily available. In addition, Medicaid spending is 

influenced by the use of waivers from federal requirements, which allows 

states to alter Medicaid financing formulas. Future requests and use of 

waivers by states are uncertain.

CBO agrees that the option may result in savings, but it could not develop a 

savings estimate for this option.

Related GAO Products Medicaid: Intergovernmental Transfers Have Facilitated State Financing 

Schemes. GAO-04-574T. Washington, D.C.: March 18, 2004.
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

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Medicaid: Improved Federal Oversight of State Financing Schemes Is 

Needed. GAO-04-228. Washington, D.C.: February 13, 2004.

Major Management Challenges and Program Risks: Department of Health 

and Human Services. GAO-03-101. Washington, D.C.: January 2003.

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver 

Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002.

Medicaid: HCFA Reversed Its Position and Approved Additional State 

Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001.

Medicaid: State Financing Schemes Again Drive Up Federal Payments. 

GAO/T-HEHS-00-193. Washington, D.C.: September 6, 2000.

Medicaid: Managed Care and Individual Hospital Limits for 

Disproportionate Share Hospital Payments. GAO/HEHS-98-73R. 

Washington, D.C.: January 28, 1998.

Medicaid: Disproportionate Share Payments to State Psychiatric 

Hospitals. GAO/HEHS-98-52. Washington, D.C.: January 23, 1998.

Medicaid: Disproportionate Share Hospital Payments to Institutions for 

Mental Disease. GAO/HEHS-97-181R. Washington, D.C.: July 15, 1997.

State Medicaid Financing Practices. GAO/HEHS-96-76R. Washington, 

D.C.: January 23, 1996.

Michigan Financing Arrangements. GAO/HEHS-95-146R. Washington, 

D.C.: May 5, 1995.

Medicaid: States Use Illusory Approaches to Shift Program Costs to the 

Federal Government. GAO/HEHS-94-133. Washington, D.C.: August 1, 1994.

Medicaid: The Texas Disproportionate Share Program Favors Public 

Hospitals. GAO/HRD-93-86. Washington, D.C.: March 30, 1993.

GAO Contact Kathryn G. Allen, (202) 512-7118
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 172 GAO-04-649 Opportunities for Oversight

Control Provider 

Enrollment Fraud in 

Medicaid

Continuing prosecutions of provider fraud in the California Medicaid 

program, which have resulted in more than $134 million in restitution and 

550 criminal convictions since 1999, involve cases in which closer scrutiny 

would have raised questions about the legitimacy of the providers involved. 

State Medicaid programs are responsible for processing millions of 

providers’ claims each year, making it impossible to perform detailed 

checks on a significant portion of them. While most providers bill 

appropriately, states need enrollment procedures to help prevent entry into 

Medicaid by providers intent on committing fraud. Preventing such 

providers from billing the program is more efficient than attempted 

recovery once payments have already been made. Since 1999, California 

has coupled its increased enforcement with closer monitoring of providers 

and increased scrutiny prior to enrollment.

Our July 2000 testimony highlighted several Medicaid programs that have 

comprehensive procedures to check the legitimacy of providers before 

they can bill the program. These states check that a provider has a valid 

license (if required) and no criminal record, has not been excluded from 

other federal health programs, and practices from a legitimate business 

location. However, only nine states reported that they conduct all of these 

checks. In addition, we found that many states poorly control provider 

billing numbers. They either allow providers to bill indefinitely or fail to 

cancel inactive numbers. Since billing numbers are necessary to submit 

claims, poor control of them may allow fraudulent providers to obtain 

other providers’ numbers and bill the program inappropriately.

At present, the federal government has no uniform or minimum 

requirements in approving providers’ applications. As a result, we believe 

that it would be beneficial for the Centers for Medicare & Medicaid 

Services (CMS)—the agency formerly called the Health Care Financing 

Administration (HCFA)—to assist states in developing effective provider 

Primary agency Department of Health and Human Services 

Account Grants to States for Medicaid (75-0512)

Spending type Direct

Budget subfunction 551/Health care services

Theme Improve efficiency
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 173 GAO-04-649 Opportunities for Oversight

enrollment procedures. If states could limit entrance of even a small 

percentage of dishonest providers by adopting such procedures, future 

Medicaid costs would be reduced substantially. CMS has a work group that 

is considering options for a limited pilot project to study coordinating 

aspects of Medicaid and Medicare provider enrollment activities.

CBO agrees that the option may result in savings, but it could not develop a 

savings estimate for it.

Related GAO Products Major Management Challenges and Program Risks: Department of Health 

and Human Services. GAO-03-101. Washington, D.C.: January 2003.

Medicaid: State Efforts to Control Improper Payment Vary. GAO-01-662. 

Washington, D.C.: June 7, 2001.

Medicaid: HCFA and States Could Work Together to Better Ensure the 

Integrity of Providers. GAO/T-HEHS-00-159. Washington, D.C.: July 18, 

2000.

Medicaid: Federal and State Leadership Needed to Control Fraud and 

Abuse. GAO/T-HEHS-00-30. Washington, D.C.: November 9, 1999.

Health Care: Fraud Schemes Committed by Career Criminals and 

Organized Criminal Groups and Impact on Consumers and Legitimate 

Health Care Providers. GAO/OSI-00-1R. Washington, D.C.: October 5, 1999.

Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded 

Providers From Federal Health Programs. GAO/HEHS-97-63. Washington, 

D.C.: March 31, 1997.

Fraud and Abuse: Providers Excluded From Medicaid Continue to 

Participate in Federal Health Programs. GAO/T-HEHS-96-205. 

Washington, D.C.: September 5, 1996.

Prescription Drugs and Medicaid: Automated Review Systems Can Help 

Promote Safety, Save Money. GAO/AIMD-96-72. Washington, D.C.: June 11, 

1996.

GAO Contact Leslie G. Aronovitz, (312) 220-7767
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 174 GAO-04-649 Opportunities for Oversight

Eliminate Federal 

Funding for SCHIP 

Covering Adults 

without Children 

In July 2002, we reported both legal and policy concerns about the extent 

to which the Department of Health and Human Services (HHS) has ensured 

that approved demonstration waivers, authorized under section 1115 of the 

Social Security Act, were consistent with the goals and fiscal integrity of 

the Medicaid and State Children’s Health Insurance Program (SCHIP). The 

legal concern was that HHS approved a waiver to allow a state to use 

unspent SCHIP funding to cover adults without children, despite the 

program’s statutory objective of expanding health coverage to low-income 

children. We also reported policy concerns that approved waivers may 

increase the federal liability for program expenditures. Specifically, 

despite HHS’s oversight responsibilities for ensuring that states’ 

demonstration programs do not put the federal government at risk for 

spending more on Medicaid than it would have without such programs, two 

of the four approved waivers we reviewed could potentially cost the federal 

government at least $330 million more than if they had not been approved. 

We recommended that the Congress consider amending title XXI of the 

Social Security Act to specify that SCHIP funds are not available to provide 

health insurance coverage for childless adults. We also recommended that 

the Secretary of HHS better ensure that valid methods are used to 

demonstrate budget neutrality and appropriately adjust the federal 

obligation for the reviewed waivers. In January 2004, we reported that HHS 

has continued to approve waivers that allow states to use SCHIP funds to 

cover childless adults. We concluded that it appeared likely that HHS will, 

in the absence of action in response to the matters for congressional 

consideration raised in our July 2002 report, continue to allow states to use 

SCHIP funds to cover childless adults.

CBO estimates the following budgetary savings with this option.

Primary agency Department of Health and Human Services

Account State Children’s Health Insurance Fund

(75-0515)

Spending type Direct

Budget subfunction 551/Health care service 

Theme Redefine beneficiaries
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 175 GAO-04-649 Opportunities for Oversight

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products SCHIP: HHS Continues to Approve Waivers That Are Inconsistent with 

Program Goals. GAO-04-166R. Washington, D.C.: January 5, 2004.

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver 

Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002.

GAO Contact Kathryn G. Allen, (202) 512-7118

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Change from the CBO baseline

Budget authority 0 -12 -10 -13 -30

Outlays -18 -32 -46 -102 -174
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 176 GAO-04-649 Opportunities for Oversight

Charge Beneficiaries 

for Food Inspection 

Costs

User fees—charges individuals or firms pay for services they receive from 

the federal government—are not new but play an increasingly important 

role in financing federal programs, particularly since the Balanced Budget 

Act of 1985. In general, federal food inspection agencies have charged user 

fees only to beneficiaries of premarket reviews, such as the grading of grain 

and other commodities for quality. Federal food inspection agencies 

generally do not currently charge user fees or fully cover the cost of 

services provided for (1) compliance inspections of meat, poultry, domestic 

foods, and processing facilities to ensure adherence to safety regulations, 

(2) import inspections and export certifications to ensure that food 

products in international trade meet specified standards, and (3) standards 

setting and other support services essential to these functions. Office of 

Management and Budget (OMB) Circular A-25, User Charges, states that 

user fees should be charged to cover the full cost of federal services when 

the service recipient receives special benefits beyond those received by the 

general public. The U.S. Department of Agriculture (USDA) Food Safety 

and Inspection Service (FSIS) provides a special benefit to meat and 

poultry slaughter and processing plants that incidentally benefits the 

general public.

USDA inspection agencies recovered through user fees only about $403 

million of the $1.3 billion they spent in 2002 to inspect, test, grade, and 

approve agricultural commodities and products. Federal appropriations 

have traditionally funded the agencies’ remaining inspection expenses. 

While it has been a few years since we last reported on this issue, the 

situation has not materially changed. Accordingly, an option the Congress 

may want to consider is to set the user fees to cover the full cost of USDA 

inspection services provided to meat and poultry slaughter and processing 

plants.

Primary agency Department of Agriculture 

Accounts Multiple

Spending type Discretionary

Budget subfunction 554/Consumer and occupational health and 

safety

Theme Redefine beneficiaries
Appendix III

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Efficiency, and Effectiveness of Federal 

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CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Food Safety: Opportunities to Redirect Federal Resources and Funds Can 

Enhance Effectiveness. GAO/RCED-98-224. Washington, D.C.: August 6, 

1998.

Food-Related Services: Opportunities Exist to Recover Costs by Charging 

Beneficiaries. GAO/RCED-97-57. Washington, D.C.: March 20, 1997.

Food Safety and Quality: Uniform Risk-based Inspection System Needed 

to Ensure Safe Food Supply. GAO/RCED-92-152. Washington, D.C.: June 

26, 1992.

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-3841

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Change from the 2004 funding level

Budget authority -380 -785 -813 -843 -874

Outlays -342 -745 -810 -840 -871
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 178 GAO-04-649 Opportunities for Oversight

Redirect Carcass-byCarcass Inspection 

Resources in Meat and 

Poultry Plants

Foodborne illness in the United States is extensive and expensive. 

Foodborne diseases cause about 76 million illnesses, 325,000 

hospitalizations, and 5,200 deaths annually. In terms of medical costs and 

productivity losses, illness from just the five principal foodborne pathogens 

alone costs the nation about $7 billion annually, according to U.S. 

Department of Agriculture (USDA) estimates.

Currently, USDA’s meat and poultry inspection system does not efficiently 

and effectively use its resources to protect the public from foodborne 

illness. USDA’s system relies on outdated, labor-intensive inspection 

methods. Under current law, USDA inspects each of the over 8 billion 

livestock and bird carcasses slaughtered annually. Further, USDA’s Food 

Safety and Inspection Service (FSIS) states that current law requires it to 

inspect each of the approximately 6,000 processing plants at least once 

during each operating shift. While these inspections consume most of 

FSIS’s budget ($730 million in 2002), they are unable to detect most 

microbial contamination. While USDA has implemented a risk-based meat 

and poultry inspection system, it still maintains a carcass-by-carcass 

inspection system under current law. 

Legislative revisions could allow FSIS to further emphasize risk-based 

inspections. Much of the funding used to fulfill current meat and poultry 

carcass-by-carcass inspection activities could be redirected.

CBO agrees that the option may result in savings, but it could not develop a 

savings estimate for this option.

Primary agency Department of Agriculture

Account Food Safety and Inspection Service

(12-3700)

Spending type Discretionary

Budget subfunction 554/Consumer and occupational health and 

safety

Theme Redefine beneficiaries
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 179 GAO-04-649 Opportunities for Oversight

Related GAO Products Meat and Poultry: Better USDA Oversight and Enforcement of Safety 

Rules Needed to Reduce Risk of Foodborne Illnesses. GAO-02-902. 

Washington, D.C.: August 30, 2002.

Food Safety: Weaknesses in Meat and Poultry Inspection Pilot Should Be 

Addressed Before Implementation. GAO-02-59. Washington, D.C.: 

December 17, 2001.

Food Safety: Overview of Federal and State Expenditures. GAO-01-177. 

Washington, D.C.: February 20, 2001.

Food Safety: Opportunities to Redirect Federal Resources and Funds Can 

Enhance Effectiveness. GAO/RCED-98-224. Washington, D.C.: August 6, 

1998.

Food Safety: Risk-Based Inspections and Microbial Monitoring Needed 

for Meat and Poultry. GAO/RCED-94-192. Washington, D.C.: September 26, 

1994.

Food Safety and Quality: Uniform Risk-Based Inspection System Needed 

to Ensure Safe Food Supply. GAO/RCED-92-152. Washington, D.C.: June 

26, 1992.

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-3841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 180 GAO-04-649 Opportunities for Oversight

Create a Uniform 

Federal Mechanism for 

Food Safety

Today, a multitude of agencies oversees food safety. Two agencies account 

for most federal spending on, and regulatory responsibilities for, food 

safety. The Food Safety and Inspection Service (FSIS), under the U.S. 

Department of Agriculture (USDA), is responsible for the safety of meat, 

poultry, eggs, and some egg products, while the Food and Drug 

Administration (FDA), under the Department of Health and Human 

Services (HHS), is responsible for the safety of most other foods.

The current food safety system emerged from a patchwork of often archaic 

laws and grew into a structure that actually hampers efforts to address 

existing and emerging food safety risks. Moreover, the current regulatory 

framework addresses only a segment—primarily food processing—of the 

continuum of activities that brings food from the farm to the table. Finally, 

scientific and technical advances in the production of food, such as the 

development of genetically modified foods, have further complicated the 

responsibilities of the existing federal food safety structure. Indeed, the 

food safety system suffers from gaps, overlapping and duplicative 

inspections, poor coordination, and inefficient allocation of resources.

The Congress could consider the following options to improve the 

effectiveness and efficiency of the federal food safety system and ensure a 

comprehensive farm-to-table approach—one that starts with growers and 

extends to retailers. One option would be to consolidate federal food 

safety agencies and activities under a single, independent, risk-based food 

safety agency responsible for administering a uniform set of laws. A 

second option would be to consolidate food safety inspection activities in 

an existing department, such as USDA or HHS. 

CBO agrees that the option may result in savings, but it could not develop a 

savings estimate for this option.

Primary agency Department of Agriculture

Accounts Multiple 

Spending type Discretionary

Budget subfunction 554/Consumer and occupational health and 

safety

Theme Improve efficiency
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 181 GAO-04-649 Opportunities for Oversight

Related GAO Products Food Safety: Continued Vigilance Needed to Ensure Safety of School 

Meals. GAO-02-669T. Washington, D.C.: April 30, 2002.

Food Safety: CDC Is Working to Address Limitations in Several of Its 

Foodborne Surveillance Systems. GAO-01-973. Washington, D.C.: 

September 7, 2001.

Food Safety: Federal Oversight of Shellfish Safety Needs Improvement. 

GAO-01-702. Washington, D.C.: July 9, 2001.

Food Safety: Overview of Federal and State Expenditures. GAO-01-177. 

Washington, D.C.: February 20, 2001.

Food Safety: Federal Oversight of Seafood Does Not Sufficiently Protect 

Consumers. GAO-01-204. Washington, D.C.: January 31, 2001.

Food Safety: Actions Needed by USDA and FDA to Ensure That 

Companies Promptly Carry Out Recalls. GAO/RCED-00-195. Washington, 

D.C.: August 17, 2000.

Food Safety: Improvements Needed in Overseeing the Safety of Dietary 

Supplements and “Functional Foods.” GAO/RCED-00-156. Washington, 

D.C.: July 11, 2000.

Meat and Poultry: Improved Oversight and Training Will Strengthen New 

Food Safety System. GAO/RCED-00-16. Washington, D.C.: December 8, 

1999.

Food Safety: Agencies Should Further Test Plans for Responding to 

Deliberate Contamination. GAO/RCED-00-3. Washington, D.C.: October 

27, 1999.

Food Safety: U.S. Needs a Single Agency to Administer a Unified, RiskBased Inspection System. GAO/T-RCED-99-256. Washington, D.C.: August 

4, 1999.

Food Safety: Opportunities to Redirect Federal Resources and Funds Can 

Enhance Effectiveness. GAO/RCED-98-224. Washington, D.C.: August 6, 

1998.
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

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Food Safety: Federal Efforts to Ensure the Safety of Imported Foods Are 

Inconsistent and Unreliable. GAO/RCED-98-103. Washington, D.C.: April 

30, 1998.

Food Safety: Changes Needed to Minimize Unsafe Chemicals in Food. 

GAO/RCED-94-192. Washington, D.C.: September 26, 1994.

Food Safety and Quality: Uniform Risk-Based Inspection System Needed 

to Ensure Safe Food Supply. GAO/RCED-92-152. Washington, D.C.: June 

26, 1992.

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-3841
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 183 GAO-04-649 Opportunities for Oversight

570 Medicare Reassess Medicare Incentive Payments in Health Care Shortage Areas

Adjust Medicare Payment Rates to Reflect Changing Technology, Costs, 

and Market Prices

Increase Medicare Program Safeguard Funding

Modify the New Skilled Nursing Facility Payment Method to Ensure 

Appropriate Payments

Implement Risk-Sharing in Conjunction with Medicare Home Health 

Agency Prospective Payment System

Allow Provisions for Direct Laboratory Payment for Certain Medicare 

Pathology Services to Expire

Require Information on Enrollees from Private Health Insurers to Improve 

Identification of Medicare Beneficiaries with Other Health Coverage
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 184 GAO-04-649 Opportunities for Oversight

Reassess Medicare 

Incentive Payments in 

Health Care Shortage 

Areas

The Medicare Incentive Payment program was established in 1987 amid 

concerns that low Medicare reimbursement rates for primary care services 

cause access problems for Medicare beneficiaries in underserved areas. 

The program pays physicians a 10-percent bonus payment for Medicare 

services they provide in areas identified by the Department of Health and 

Human Services (HHS) as having a shortage of primary care physicians. In 

2002, Medicare Incentive Payments totaled $104 million.

This program, however, may not be the most appropriate means of 

addressing medical underservice.

• The need for this program may have changed; since 1987 the Congress 

generally increased reimbursement rates for primary care services and 

reduced the geographic variation in physician reimbursement rates. In 

addition, surveys of Medicare beneficiaries who have access problems, 

including those who may live in underserved areas, generally cite 

reasons other than the unavailability of a physician—such as the cost of 

services not paid by Medicare—for their access problems.

• The relatively small bonus payments most physicians receive—a median 

payment of $341 for the year in 1996—are unlikely to have a significant 

impact on physician recruitment and retention.

• Specialists receive most of the program dollars, even though primary 

care physicians have been identified as being in short supply, while 

shortages of specialists, if any, have not been determined.

• The program provides no incentives or assurances that physicians 

receiving bonuses will actually treat people who have problems 

obtaining health care.

Primary agency Department of Health and Human Services

Account Federal Supplemental Insurance Trust Fund 

Account (20-8004)

Spending type Direct

Budget subfunction 571/Medicare

Theme Reassess objectives
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 185 GAO-04-649 Opportunities for Oversight

• Centers for Medicare & Medicaid Services––formerly the Health Care 

Financing Administration––oversight of the program also has 

limitations that allow physicians and other providers to receive and 

retain bonus payments claimed in error.

HHS has acknowledged problems in the program and agrees that making 

incentive payments to specialists in urban areas appears to be unnecessary. 

The department has stated that it is clear that certain structural changes to 

this program are necessary to better target incentive payments to rural 

areas with the highest degree of shortage.

If the Congress determines that this program is not an appropriate vehicle 

for addressing medical underservice, then termination is a reasonable 

option. However, if it is decided to continue the program, then the 

Congress could consider reforms that clarify the program’s goals and better 

structure the program to link limited federal funds to intended outcomes. 

For example, if the program’s goal is to improve access to primary care 

services in underserved rural areas, the bonus payments should be limited 

to physicians providing primary care services to underserved populations 

in rural areas with the greatest need. Better targeting of the payments and 

evaluations would also be needed to provide assurances that the payments 

are achieving their intended outcomes.

CBO was not able to determine if this option would result in a budget 

savings.

Related GAO Products Physician Workforce: Physician Supply Increased in Metropolitan and 

Nonmetropolitan Areas but Geographic Disparities Persisted. GAO-04-

124. Washington, D.C.: October 31, 2003.

Physician Shortage Areas: Medicare Incentive Payments Not an Effective 

Approach to Improve Access. GAO/HEHS-99-36. Washington, D.C.: 

February 26, 1999.

Health Care Shortage Areas: Designations Not a Useful Tool for Directing 

Resources to the Underserved. GAO/HEHS-95-200. Washington, D.C.: 

September 8, 1995.

GAO Contact A. Bruce Steinwald, (202) 512-7114
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 186 GAO-04-649 Opportunities for Oversight

Adjust Medicare 

Payment Rates to 

Reflect Changing 

Technology, Costs, and 

Market Prices

Medicare’s supplementary medical insurance program (Medicare Part B) 

spent almost $9.4 billion for durable medical equipment, prosthetics, 

orthotics, and supplies in 2002 on behalf of its beneficiaries. For most 

medical equipment and supplies, Medicare payments are primarily based 

on historical charges, indexed forward, rather than current costs or market 

prices.

We have reported that Medicare payments for some medical equipment and 

supplies are out of line with actual market prices. This can occur when 

providers’ costs for some procedures, equipment, and supplies have 

declined over time as competition and efficiencies increased. For example, 

when Medicare sets its payment rates for new items, the rates typically are 

based on the high initial unit costs. Over time, providers’ unit costs decline 

as the equipment improves, utilization increases, and experience in using 

the equipment results in efficiencies. In other cases, medical innovations 

and advances have increased the cost of some procedures and products. 

However, Medicare did not have a process to routinely and systematically 

review these factors and make timely adjustments to the Medicare payment 

rates. In fact, through the years, the Congress has legislatively adjusted 

Medicare rates for some products and services, such as home oxygen, 

clinical laboratory tests, intraocular lenses, computed tomography scans, 

and magnetic resonance imaging scans.

To address problems with excessive payments, the Balanced Budget Act of 

1997 provided the Health Care Financing Administration (HCFA)—the 

agency now called the Centers for Medicare & Medicaid Services (CMS)— 

the authority to use a streamlined process for adjusting Medicare Part B 

payments by up to 15 percent per year. (This revised authority does not 

extend to adjusting Medicare payments for physician services.) The 

agency issued an interim final rule to implement its authority in December 

Primary agency Department of Health and Human Services

Account Federal Supplementary Medical Insurance 

Trust Fund (20-8004)

Spending type Direct

Budget subfunction 571/Medicare

Theme Improve efficiency
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 187 GAO-04-649 Opportunities for Oversight

2002. However, in the rule, the agency limited its ability to use its new 

authority to bring its payment rates into line with market prices by 

indicating that it would adjust Medicare payment rates only when they 

were at least 15 percent above or below a realistic and equitable amount.

An additional limitation to effectively using this new authority is that CMS 

frequently does not know specifically what Medicare is paying for. CMS 

does not require suppliers to identify on Medicare claims the specific items 

billed. Instead, suppliers are required to use CMS billing codes, most of 

which cover a broad range of products of various types, qualities, and 

market prices. For example, one Medicare billing code is used for more 

than 200 different urological catheters, even though some of these 

catheters sell at a fraction of the price of others billed under the same code. 

Unless Medicare claims contain more product-specific information, CMS 

cannot track what items are billed to ensure that each billing code is used 

for products of comparable quality and price. Although the health care 

industry is increasingly using more specific universal product numbers and 

bar codes for inventory control, CMS does not currently require suppliers 

to use these identifiers on Medicare claims.

Several options could help to better align Medicare fees with actual costs 

and market prices. One option that the Congress has recently acted upon is 

to give CMS the authority to implement competitive bidding for durable 

medical equipment, prosthetics, orthotics, and supplies. Competitive 

bidding creates incentives for providers to provide items and services at 

lower costs to obtain business. The Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003 requires CMS to develop 

programs for the competitive acquisition of durable medical equipment and 

supplies and off the shelf orthotics in 10 of the largest statistical 

metropolitan areas in 2007, 80 of the largest metropolitan statistical areas 

in 2009, and in additional areas thereafter. Priority may be given to those 

items and services that represent the highest cost and volume to the 

Medicare program or have the greatest potential for program savings. CMS 

can use information on the payments determined through competitive 

bidding in these localities for specific items to adjust the amounts Medicare 

will pay for them in other localities.

In November 2003, CBO estimated that giving CMS authority to conduct 

competitive bidding for durable medical equipment, off-the-shelf orthotics 

and supplies and other changes in payment for these items in the Medicare 

legislation could result in a net reduction of Medicare spending of $6.8 

billion from fiscal years 2004 through 2013.
Appendix III

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A second option for paying more appropriately for medical equipment and 

supplies would be to base Medicare payments on the lower of the fee 

schedule allowance or the lowest amount a provider has agreed to accept 

from other payers. CMS would need legislative authority to pursue this 

option. Yet another approach would be to develop separate fee schedules 

that distinguish between wholesale and retail acquisition to ensure that 

large suppliers do not receive inappropriately large Medicare 

reimbursements. Although none of these options specifically targets 

expensive, evolving technologies, we believe significant program savings 

would result from an ongoing, systematic process for evaluating the 

reasonableness of Medicare payment rates for new medical technologies as 

those technologies mature.

CBO was not able to determine if this option would result in a budget 

savings.

Related GAO Products Major Management Challenges and Program Risks: Department of Health 

and Human Services. GAO-03-101. Washington, D.C.: January 2003.

Medicare: Challenges Remain in Setting Payments for Medical 

Equipment and Supplies and Covered Drugs. GAO-02-833T. Washington, 

D.C.: June 12, 2002.

Medicare Payments: Use of Revised “Inherent Reasonableness” Process 

Generally Appropriate. GAO/HEHS-00-79. Washington, D.C.: July 5, 2000.

Medicare: Access to Home Oxygen Largely Unchanged; Closer HCFA 

Monitoring Needed. GAO/HEHS-99-56. Washington, D.C.: April 5, 1999.

Medicare: Progress to Date in Implementing Certain Major Balanced 

Budget Act Reforms. GAO/T-HEHS-99-87. Washington, D.C.: March 17, 

1999.

Medicare: Need to Overhaul Costly Payment System for Medical 

Equipment and Supplies. GAO/HEHS-98-102. Washington, D.C.: May 12, 

1998.

Medicare: Home Oxygen Program Warrants Continued HCFA Attention. 

GAO/HEHS-98-17. Washington, D.C.: November 7, 1997.
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

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Medicare: Problems Affecting HCFA’s Ability to Set Appropriate 

Reimbursement Rates for Medical Equipment and Supplies. GAO/HEHS97-157R. Washington, D.C.: June 17, 1997.

Medicare: Comparison of Medicare and VA Payment Rates for Home 

Oxygen. GAO/HEHS-97-120R. Washington, D.C.: May 15, 1997.

Medicare Spending: Modern Management Strategies Needed to Curb 

Billions in Unnecessary Payments. GAO/HEHS-95-210. Washington, D.C.: 

September 19, 1995.

Medicare High Spending Growth Calls for Aggressive Action. 

GAO/T-HEHS-95-75. Washington, D.C.: February 6, 1995.

GAO Contact Leslie G. Aronovitz, (312) 220-7767
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 190 GAO-04-649 Opportunities for Oversight

Increase Medicare 

Program Safeguard 

Funding

Medicare program safeguard activities designed to combat fraud, waste, 

and abuse have historically returned about $10 in savings for each dollar 

spent, and Centers for Medicare & Medicaid Services (CMS) reported a 

return of $16 for each dollar spent in fiscal year 2002. These types of 

activities include pre- and post-payment medical review of claims to 

determine if services are medically necessary and appropriate, audits, and 

fraud unit investigations. The Health Insurance Portability and 

Accountability Act of 1996 established the Medicare Integrity Program 

(MIP) and provided the agency now called CMS with increased funding for 

program safeguard activities. CMS has taken a number of actions under 

MIP to promote more efficient and effective contractor safeguard 

operations.

While funding has increased, in 2002 it remained below program safeguard 

funding levels in the previous decade, adjusted for inflation. Comparing 

program safeguard expenditures from fiscal years 1995 through 1998—2 

years before and after MIP implementation—shows that expenditures 

increased by more than one-quarter to $544.6 million. However, in constant 

1998 dollars, the amount spent on program safeguards per claim processed 

is still almost one-third less than was spent in fiscal year 1989. Further, the 

combined effects of increased claims volume of 3 to 5 percent annually in 

recent years and inflation will erode part of the benefits of increased 

funding authorized for future years. In response to reduced resources, 

contractors apply fewer or less stringent payment controls resulting in 

payment of claims that otherwise would not be paid.

Primary agency Department of Health and Human Services

Accounts Health Care Fraud and Abuse Control 

Account (75-8393)

Federal Hospital Insurance Trust Fund

(20-8005)

Federal Supplementary Medical Insurance 

Trust Fund (20-8004) 

Spending type Discretionary/Direct

Budget subfunction 571/Medicare

Theme Improve efficiency
Appendix III

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We believe that additional program safeguard funding might better protect 

Medicare from erroneous payments and yield net savings. As a result, we 

have suggested that the Congress consider increasing the agency’s MIP 

funds to allow an expansion of postpayment medical review and other 

effective program safeguard activities. However, CMS needs a better 

understanding of costs and savings from particular activities—such as desk 

reviews and cost audits. It also needs to consistently code savings from 

different activities to understand their relative value, as well as determine 

which contractors are realizing the highest return on investment from their 

program safeguard activities. Therefore, we also recommended that CMS 

evaluate the effectiveness of prepayment and postpayment activities to 

determine the relative benefits of various safeguards.

CBO was not able to determine if this option would result in a budget 

savings.

Related GAO Products Major Management Challenges and Program Risks: Department of Health 

and Human Services. GAO-03-101. Washington, D.C.: January 2003.

Medicare: Opportunities and Challenges in Contracting for Program 

Safeguards. GAO-01-616. Washington, D.C.: May 18, 2001.

Major Management Challenges and Program Risks: Department of Health 

and Human Services. GAO-01-247. Washington, D.C.: January 2001.

Medicare: HCFA Could Do More to Identify and Collect Overpayments. 

GAO/HEHS/AIMD-00-304. Washington, D.C.: September 7, 2000.

Medicare: Health Care Fraud and Abuse Control Program Financial 

Reports for Fiscal Years 1998 and 1999. GAO/AIMD-00-257R. Washington, 

D.C.: July 31, 2000.

Medicare Contractors: Further Improvement Needed in Headquarters 

and Regional Office Oversight. GAO/HEHS-00-46. Washington, D.C.: March 

23, 2000.

Medicare: Program Safeguard Activities Expand, but Results Difficult to 

Measure. GAO/HEHS-99-165. Washington, D.C.: August 4, 1999.

Medicare Contractors: Despite Its Efforts, HCFA Cannot Assure Their 

Effectiveness or Integrity. GAO/HEHS-99-115. Washington, D.C.: July 14, 

1999.
Appendix III

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Efficiency, and Effectiveness of Federal 

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Medicare: Improprieties by Contractors Compromised Medicare 

Program Integrity. GAO/OSI-99-7. Washington, D.C.: July 14, 1999.

Medicare: Fraud and Abuse Control Pose a Continuing Challenge. 

GAO/HEHS-98-215R. Washington, D.C.: July 15, 1998.

Medicare: Health Care Fraud and Abuse Control Program Financial 

Report for Fiscal Year 1997. GAO/AIMD-98-157. Washington, D.C.: June 1, 

1998.

Medicare: HCFA’s Use of Anti-Fraud-and-Abuse Funding and 

Authorities. GAO/HEHS-98-160. Washington, D.C.: June 1, 1998.

Medicare: Improper Activities by Mid-Delta Home Health. GAO/OSI-98-5. 

Washington, D.C.: March 12, 1998.

Medicare Home Health: Success of Balanced Budget Act Cost Controls 

Depends on Effective and Timely Implementation. GAO/T-HEHS-98-41. 

Washington, D.C.: October 29, 1997.

Medicare: Recent Legislation to Minimize Fraud and Abuse Requires 

Effective Implementation. GAO/T-HEHS-98-9. Washington, D.C.: October 

9, 1997.

Medicare Fraud and Abuse: Summary and Analysis of Reform in the 

Health Insurance Portability and Accountability Act of 1996 and the 

Balanced Budget Act of 1997. GAO/HEHS-98-18R. Washington, D.C.: 

October 9, 1997.

Medicare: Control Over Fraud and Abuse Remains Elusive. GAO/T-HEHS97-165. Washington, D.C.: June 26, 1997.

Nursing Homes: Too Early to Assess New Efforts to Control Fraud and 

Abuse. GAO/T-HEHS-97-114. Washington, D.C.: April 16, 1997.

Medicare: Inherent Program Risks and Management Challenges Require 

Continued Federal Attention. GAO/T-HEHS-97-89. Washington, D.C.: 

March 4, 1997.

Medicare. GAO/HR-97-10. Washington, D.C.: February 1, 1997.

GAO Contact Leslie G. Aronovitz, (312) 220-7767
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 193 GAO-04-649 Opportunities for Oversight

Modify the New Skilled 

Nursing Facility 

Payment Method to 

Ensure Appropriate 

Payments

The Balanced Budget Act of 1997 mandated the implementation of a 

prospective payment system (PPS) for skilled nursing facilities (SNF) to 

help address concerns about dramatic growth in Medicare spending for 

these services. A PPS provides incentives to deliver services efficiently by 

paying providers—regardless of their costs—fixed, predetermined rates 

that vary according to expected patient service needs. The Health Care 

Financing Administration (HCFA), now called the Centers for Medicare & 

Medicaid Services (CMS), began phasing in such a system for SNFs in July 

1998.

However, problems with the design of the PPS, the services excluded from 

the daily rate, and inadequate data used to establish rates could 

compromise Medicare’s ability to stem spending growth while maintaining 

beneficiary access. We are concerned that the PPS preserves the 

opportunity for providers to increase their compensation by supplying 

unnecessary services, such as additional therapy services, and by changing 

their patient assessment practices to qualify patients into higher paying 

payment categories. Consistent with the PPS incentives to minimize costs, 

SNFs have provided fewer therapy services to patients categorized into 

rehabilitation payment groups. Without adequate adjustments, this could 

result in higher payments relative to service costs for some categories of 

patients. We are also concerned that increases in payments intended to 

encourage SNFs to increase their nursing staff appear to have been 

ineffective in increasing staffing ratios. This is true despite the fact that 

Medicare margins were high—a median of almost 19 percent for freestanding facilities in 2000. In addition, excluding certain services from the 

daily rate, and paying for them separately, may encourage service provision 

and unnecessarily increase Medicare spending. For example, some 

services are excluded only when provided in hospital outpatient 

departments, which may encourage providers to use this setting when 

Primary agency Department of Health and Human Services

Account Federal Hospital Insurance Trust Fund

(20-8005)

Spending type Direct

Budget subfunction 571/Medicare

Theme Improve efficiency
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other, less costly ambulatory settings could be appropriate. Furthermore, 

the payment rates were computed using data that may overstate the 

reasonable cost of providing care and may not appropriately reflect the 

differences in costs for patients with different care needs.

Changes in beneficiary eligibility and inadequate planned oversight of 

claims for payment may undermine efforts to control Medicare spending on 

SNF services. Under the PPS, beneficiaries with certain care needs are 

automatically eligible for the SNF benefit, while other beneficiaries with 

different care needs are required to be reviewed to ensure that they meet 

the eligibility criteria. This could expand the number of beneficiaries 

covered. The planned oversight of claims to determine if a beneficiary is 

entitled to Medicare coverage and how much payment a SNF should 

receive is insufficient, increasing the potential to compromise expected 

savings.

We believe that CMS should modify the SNF PPS regulations to address 

these concerns. Medicare needs to ensure that the payment rates reflect 

only necessary services that the facilities actually provide. It also needs to 

establish a process to review the services that are included and excluded 

from the PPS. CMS should also increase its vigilance over claims review 

and provider oversight so that payments are appropriate and made only for 

eligible beneficiaries.

CBO agrees that improved payment methods and oversight could reduce 

spending. However, by convention, CBO only estimates the costs or 

savings of proposals that change current law, not administrative changes.

Related GAO Products Skilled Nursing Facilities: Medicare Payments Exceed Costs for Most but 

Not All Facilities. GAO-03-183. Washington, D.C.: December 31, 2002.

Skilled Nursing Facilities: Available Data Show Average Nursing Staff 

Time Changed Little after Medicare Payment Increase. GAO-03-176. 

Washington, D.C.: November 13, 2002.

Skilled Nursing Facilities: Providers Have Responded to Medicare 

Payment System By Changing Practices. GAO-02-841. Washington, D.C.: 

August 23, 2002.

Skilled Nursing Facilities: Services Excluded From Medicare’s Daily Rate 

Need to be Reevaluated. GAO-01-816. Washington, D.C.: August 22, 2001.
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 195 GAO-04-649 Opportunities for Oversight

Nursing Homes: Aggregate Medicare Payments Are Adequate Despite 

Bankruptcies. GAO/T-HEHS-00-192. Washington, D.C.: September 5, 2000.

Skilled Nursing Facilities: Medicare Payments Changes Require Provider 

Adjustments But Maintain Access. GAO/HEHS-00-23. Washington, D.C.: 

December 14, 1999.

Medicare: Better Information Can Help Ensure That Refinements to BBA 

Reforms Lead to Appropriate Payments. GAO/T-HEHS-00-14. Washington, 

D.C.: October 1, 1999.

Skilled Nursing Facilities: Medicare Payments Need to Better Account for 

Nontherapy Ancillary Cost Variation. GAO/HEHS-99-185. Washington, 

D.C.: September 30, 1999.

Medicare Post-Acute Care: Better Information Needed Before Modifying 

BBA Reforms. GAO/T-HEHS-99-192. Washington, D.C.: September 15, 1999.

Balanced Budget Act: Any Proposed Fee-for-Service Payment 

Modifications Need Thorough Evaluation. GAO/T-HEHS-99-139. 

Washington, D.C.: June 10, 1999.

Medicare: Progress to Date in Implementing Certain Major Balanced 

Budget Act Reforms. GAO/T-HEHS-99-87. Washington, D.C.: March 17, 

1999.

Balanced Budget Act: Implementation of Key Medicare Mandates Must 

Evolve to Fulfill Congressional Objectives. GAO/T-HEHS-98-214. 

Washington, D.C.: July 16, 1998.

Long-Term Care: Baby Boom Generation Presents Financing Challenges. 

GAO/T-HEHS-98-107. Washington, D.C.: March 9, 1998.

Medicare Post-Acute Care: Home Health and Skilled Nursing Facility 

Cost Growth and Proposals for Prospective Payment. GAO/T-HEHS-97-90. 

Washington, D.C.: March 4, 1997.

GAO Contact Laura A. Dummit, (202) 512-7114
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 196 GAO-04-649 Opportunities for Oversight

Implement RiskSharing in Conjunction 

with Medicare Home 

Health Agency 

Prospective Payment 

System

Following a dramatic increase in Medicare spending for home health 

agencies (HHA), the Balanced Budget Act of 1997 (BBA) required the 

implementation of a prospective payment system (PPS) for HHAs. Under 

the PPS, which began October 1, 2000, Medicare pays a fixed, 

predetermined amount for each 60-day episode of care, adjusted for patient 

characteristics that are expected to affect the costs of providing care. 

Under this system, agencies are rewarded financially for keeping their perepisode costs below the payment rate and thus have a strong incentive to 

reduce the number of visits provided during an episode and to shift to a less 

costly mix of visits.

However, under an episode-based payment system, HHAs have an incentive 

to provide the minimum number of visits necessary to receive a full episode 

payment, or to lower the number of visits provided below that used to 

develop the episode payment, thereby increasing their profits. While the 

episode payment was set based on the assumption that about 32 visits 

would be provided, agencies can provide as few as 5 visits. In fact, 

agencies have reduced the number of visits provided to beneficiaries and 

furnished on average about 22 visits per episode by the first half of 2001. 

As a result, on average, the Medicare program is paying HHAs considerably 

more than the estimated costs of care beneficiaries are actually receiving. 

Some HHAs that face extraordinary costs not accounted for by the 

payment groups, however, may be financially disadvantaged.

In order to reduce these incentives, the Congress could require CMS to 

implement a risk-sharing arrangement, in which total Medicare PPS 

payments to an HHA are adjusted at year-end in light of the provider’s 

actual costs, to mitigate any unintended consequences of the payment 

change. Such an arrangement could moderate the incentive to manipulate 

Primary agency Department of Health and Human Services

Account Federal Supplementary Medical Insurance 

Trust Fund (20-8004) and Federal Hospital 

Insurance Trust Fund (20-8005)

Spending type Direct

Budget subfunction 571/Medicare

Theme Improve efficiency
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services to maximize profits and the uncertainties associated with payment 

rates that are based on averages when so little is known about appropriate 

patterns of home health care. Limiting an HHA’s losses or gains would help 

protect the industry, the Medicare program, and beneficiaries from possible 

negative effects of the PPS until more is known about how best to design 

the PPS and the most appropriate home health treatment patterns.

CBO was not able to determine if this option would result in a budget 

savings.

Related GAO Products Medicare Home Health Payment: Nonroutine Medical Supply Data 

Needed to Assess Payment Adjustments. GAO-03-878. Washington, D.C.:

August 15, 2003.

Medicare: Utilization of Home Health Care by State. GAO-02-782R. 

Washington, D.C.: May 23, 2002.

Medicare Home Health Care: Payments to Home Health Agencies Are 

Considerably Higher than Costs. GAO-02-663. Washington, D.C.: May 6, 

2002.

Medicare Home Health: Clarifying the Homebound Definition Is Likely 

to Have Little Effect on Costs and Access. GAO-02-555R. Washington, D.C.:

April 26, 2002.

Medicare Home Health Care: Prospective Payment System Could Reverse 

Recent Declines in Spending. GAO/HEHS-00-176. Washington, D.C.: 

September 8, 2000.

Medicare Home Health Care: Prospective Payment System Will Need 

Refinement as Data Become Available. GAO/HEHS-00-9. Washington, D.C.: 

April 7, 2000.

GAO Contact Laura A. Dummit, (202) 512-7114
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 198 GAO-04-649 Opportunities for Oversight

Allow Provisions for 

Direct Laboratory 

Payment for Certain 

Medicare Pathology 

Services to Expire

Hospitals receive fixed, predetermined amounts under Medicare’s hospital 

inpatient and outpatient prospective payment systems (PPS) for providing 

necessary services to Medicare beneficiaries. By paying hospitals fixed 

amounts under a PPS, Medicare seeks to encourage them to operate 

efficiently, because hospitals retain the difference if payments exceed their 

costs to provide necessary services. Hospitals that outsource services for 

their patients generally pay suppliers of those services directly, and the 

suppliers do not receive payment from Medicare.

In 2000, the Congress enacted provisions in the Medicare, Medicaid, and 

SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) to delay 

for 2 years application of a rule issued by the Health Care Financing 

Administration (HCFA), now called the Centers for Medicare & Medicaid 

Service (CMS). The rule terminated an exception to the inpatient and 

outpatient PPS that permitted one type of supplier—laboratories—to 

receive payment directly from Medicare when providing technical 

pathology services42 to beneficiaries who are hospital patients. The BIPA 

provisions applied only to “covered hospitals,” those hospitals that had 

agreements with laboratories for outsourced technical pathology services 

in effect as of July 22, 1999, the date HCFA proposed the rule. By 

terminating direct payments to laboratories, HCFA’s 1999 rule would have 

resulted in hospitals either paying laboratories for outsourced services or 

providing the services themselves. 

Primary agency Department of Health and Human Services

Accounts Federal Hospital Insurance Trust Fund 

(20-8005)

Federal Supplementary Medical Insurance 

Trust Fund (20-8004)

Spending type Direct/Discretionary

Budget subfunction 571/Medicare

Theme Improve efficiency 

42Technical pathology services involve the preparation of tissue samples removed during 

surgery for examination by a pathologist. Such services involve cutting, mounting, and 

staining the specimen on a microscope slide. 
Appendix III

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Efficiency, and Effectiveness of Federal 

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Although the BIPA provisions expired at the end of 2002, CMS made an 

administrative decision to continue directly paying laboratories for 

technical pathology services provided to hospital patients. In the Medicare 

Prescription Drug, Improvement, and Modernization Act of 2003, the BIPA 

provisions were amended to also apply to technical pathology services 

provided during 2005 and 2006. 

We reported in 2003 that if laboratories had not received direct payment for 

services to hospital patients, Medicare spending would have been an 

estimated $42 million less in 2001, with $18 million and $24 million in 

savings for inpatient and outpatient services, respectively. In addition, 

overall beneficiary cost sharing would have been reduced by $2 million. 

We believe hospitals are unlikely to experience a large financial burden 

from paying laboratories to provide technical pathology services. 

In light of expected Medicare savings, we suggest that for calendar year 

2005, the Congress may wish to consider permanently removing the 

exception that allows direct Medicare payment to laboratories for technical 

pathology services provided to hospital patients.

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Product Medicare: Modifying Payments for Certain Pathology Services Is 

Warranted. GAO-03-1056. Washington, D.C.: September 30, 2003.

GAO Contact A. Bruce Steinwald, (202) 512-7119

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Change from the CBO baseline

Budget authority -57 -82 -21 0 0

Outlays -57 -82 -21 0 0
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 200 GAO-04-649 Opportunities for Oversight

Require Information on 

Enrollees from Private 

Health Insurers to 

Improve Identification 

of Medicare 

Beneficiaries with 

Other Health Coverage

Until 1980, the Medicare program was the primary payer for covered health 

services for all beneficiaries, except those involving workers’ 

compensation or veterans benefits. Since 1980, new laws have made 

Medicare the secondary payer for individuals with certain employer group 

health plan coverage43 and other categories of beneficiaries. The Centers 

for Medicare & Medicaid Services (CMS) uses a contractor to conduct a 

variety of activities to identify whether beneficiaries might have other 

sources of health insurance coverage with primary payment responsibility 

for their health care claims. For example, CMS’s contractor matches 

Medicare data with employment and earnings data maintained by the 

Internal Revenue Service and the Social Security Administration to identify 

beneficiaries who may have health insurance through their or their 

spouse’s employer. However, there can be a 2-year time lag between when 

a beneficiary or spouse is employed and when contractors can confirm the 

information about employment. As a result, even with current data match 

activities, Medicare can have paid for claims long before another liable 

insurer is identified.

Primary agency Department of Health and Human Services

Accounts Health Care Fraud and Abuse Control 

Account (75-8393)

Federal Hospital Insurance Trust Fund 

(20-8005)

Federal Supplementary Medical Insurance 

Trust Fund (20-8004)

Spending type Direct

Budget subfunction 571/Medicare

Theme Improve efficiency

43 Employer-sponsored group health plans can be the primary payers for Medicare 

beneficiaries. An employer with 20 or more employees must offer the same health 

insurance coverage to workers age 65 and over as to other employees, and, if it is offered, 

health insurance coverage for employees’ spouses aged 65 and older. If a worker accepts the 

coverage, then Medicare is the secondary payer. A large group health plan, defined as a 

health plan offered by an employer with 100 or more employees, is the primary payer for 

disabled Medicare beneficiaries under age 65 who are working or the spouses of individuals 

who are working. 
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GAO has long recognized that private health insurance companies and 

employers sponsoring their own health plans are in the best position to 

routinely identify enrollees who might also be Medicare beneficiaries. 

Currently, private health insurance companies are under no obligation to 

inform CMS that some of their enrollees are Medicare beneficiaries, unless 

there is a court settlement requiring such data sharing. CMS has entered 

into voluntary data sharing agreements with some private health insurers 

and employers to obtain data on their working enrollees and dependents. 

These private health insurers and employers represent over 40 percent of 

Medicare beneficiaries and their voluntary data sharing agreements 

resulted in at least $61 million in Medicare savings in fiscal year 2003. 

We believe if private health insurers were required to share the names and 

identifying information on their enrollees, CMS could more effectively 

identify beneficiaries with other primary health insurance coverage. As a 

result, one option we have suggested is that the Congress consider 

requiring private health insurers to provide CMS information on their 

enrolled beneficiaries, on a schedule and using a format determined by 

CMS. The President’s budget made a similar proposal for fiscal year 2003, 

with a cost savings estimate of $1.0 billion over a ten-year period.

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Product Medicare: HCFA Could Do More to Identify and Collect Overpayments. 

GAO/HEHS/AIMD-00-304. Washington, D.C.: September 7, 2000.

GAO Contact Leslie G. Aronovitz, (312) 220-7767

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Change from the CBO baseline

Budget authority 0 -125 -125 -125 -125

Outlays 0 -125 -125 -125 -125
Appendix III

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Efficiency, and Effectiveness of Federal 

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600 Income Security Revise Benefit Payments under the Federal Employees’ Compensation Act

Implement a Service Fee for Successful Non-Temporary Assistance for 

Needy Families Child Support Enforcement Collections

Improve Reporting of DOD Reserve Employee Payroll Data to State 

Unemployment Insurance Programs

Improve Social Security Benefit Payment Controls

Simplify Supplemental Security Income Recipient Living Arrangements

Sustain/Expand Range of SSI Program Integrity Activities

Better Congressional Oversight of PRWORA’s Fugitive Felon Provisions

Improve the Administrative Oversight of Food Assistance Programs

Share the Savings from Bond Refundings

Reduce Federal Funding Participation Rate for Automated Child Support 

Enforcement Systems
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 203 GAO-04-649 Opportunities for Oversight

Revise Benefit 

Payments under the 

Federal Employees’ 

Compensation Act

Federal workers who are disabled as a result of a work-related injury are 

entitled to tax-free workers’ compensation benefits under the Federal 

Employees’ Compensation Act (FECA). Several GAO reviews have 

identified ways in which benefit payment policies can be revised to better 

address eligibility and/or need or to bring FECA benefits more in line with 

other federal and state workers’ compensation laws.

Basing FECA Compensation 

on Spendable Earnings

For almost all totally disabled individuals, FECA benefits are 66 and two 

thirds percent of gross pay for beneficiaries without dependents and 75 

percent of gross pay for beneficiaries with at least one dependent. We 

reported that nearly 30 percent of the more than 23,000 beneficiaries 

included in our analyses received FECA compensation benefits that 

replaced more than 100 percent of their estimated take-home pay. Another 

40 percent of these beneficiaries received FECA benefits that were from 90 

to 99 percent of their take-home pay. Benefit replacement rates tended to 

be higher for beneficiaries who (1) received higher amounts of pay before 

they were injured, (2) were injured before 1980, (3) received the FECA 

dependent benefit, and (4) lived in states that had an income tax.

Workers’ compensation program analysts are reluctant to take a position 

on what the “correct” level of workers’ compensation benefits should be, 

leaving that matter to the judgment of legislators. According to a 1985 

Workers Compensation Research Institute report, legislators in many 

states must walk a fine line between benefits that are high enough to 

provide adequate income, but not so high as to discourage an employee’s 

return-to-work when he or she is no longer disabled. The 1972 Report of 

the National Commission on State Workmen’s Compensation Laws 

recommended that workers’ weekly benefits should replace at least 80 

percent of their spendable weekly earnings, subject to a state’s maximum 

Primary agency Department of Labor

Accounts Multiple

Spending types Direct/Discretionary

Budget subfunction 609/Other income security

Theme Reassess objectives
Appendix III

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weekly benefit. Six states use a percentage of spendable weekly earnings 

(ranging from 75 to 80 percent) rather than a percentage of gross wages as 

the basis for computing compensation benefits. Spendable earnings (takehome pay) are computed by taking an employee’s gross pay at the time of 

injury and subtracting Social Security taxes and federal and state income 

taxes. Taxes are based on published tax withholding tables, given an 

employee’s actual exemptions and a standard deduction.

If the Congress judges that current FECA benefits are so high as to 

discourage employees from returning to work, it could consider changing 

the current FECA benefit structure from one that bases compensation on 

gross pay to one that bases compensation on spendable earnings. 

CBO was not able to determine if this option would result in a budget 

savings.

Revising Benefits for 

Retirement-Eligible 

Beneficiaries

Retirement-eligible federal workers who continue to be disabled as a result 

of work-related injuries could receive tax-free workers’ compensation 

benefits under FECA for the remainder of their lives that would generally 

be greater than amounts these workers would receive as retirement 

benefits. FECA benefits are 75 percent of salary for a disabled employee 

with a dependent; Civil Service Retirement System benefits for a 55-year 

old employee with 30 years of service are 56 percent of salary. We reported 

that 60 percent of the approximately 44,000 long-term FECA beneficiaries 

were at least age 55, the age at which some federal employees are eligible 

for optional retirement with unreduced retirement benefits. Proponents 

for changing FECA benefits for older beneficiaries argue that an inequity is 

created between federal workers who retire normally and those who, in 

effect, “retire” on FECA benefits. Opponents of such a change argue that 

reducing benefits would break the implicit promise that injured workers 

have exchanged their right to tort claims for a given level of future benefits.

We identified two prior proposals for reducing FECA benefits to those who 

become eligible for retirement. One would convert compensation benefits 

received by retirement-eligible disabled workers to retirement benefits. 

However, this approach raises complex issues related to the tax-free nature 

of workers’ compensation benefits and to the individual’s entitlement to 

retirement benefits. The second proposal would convert FECA benefits to 

a newly established FECA annuity, thus avoiding the complexity of shifting 

from one benefit program to another.
Appendix III

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To reduce benefits for retirement-eligible FECA beneficiaries, the Congress 

could consider converting from the current FECA benefit structure to a 

FECA annuity. 

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Five-Year Savings

Source: Congressional Budget Office.

FECA Cases Involving Third 

Parties

FECA authorizes federal agencies to continue paying employees their 

regular salaries for up to 45 days when they are absent from work due to 

work-related traumatic injuries. In cases in which third parties are 

responsible for employees’ on-the-job injuries (e.g., dog bites or 

automobile-related injuries), the Department of Labor may require that 

employees pursue collection actions against these parties. However, based 

on current interpretations of FECA by the Employees’ Compensation 

Appeals Board and a federal appeals court, the federal government has no 

legal basis to obtain refunds from third parties for the first 45 days of 

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Revising Benefits for Retirement Eligible Beneficiaries

Discretionary Spending

Savings from the CBO baseline

Budget authority 2 5 13 21 29

Outlays 2 5 13 21 29

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Revising Benefits for Retirement Eligible Beneficiaries

Direct Spending

Savings from the CBO baseline

Budget authority 5 10 11 11 11

Outlays 5 10 11 11 11
Appendix III

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absence from work (called the continuation-of-pay (COP) period). 

Recoveries from third parties continue to be allowed for payments of 

compensation benefits following the COP period and for medical benefits.

Based on the current interpretation of FECA, employees can receive 

regular salary payments from their employing agencies and 

reimbursements from third parties—in effect, a double recovery of income 

for their first 45 days of absence from work due to injuries for which third 

parties were responsible. We recommended that the Congress amend 

FECA to expressly provide for refunds of amounts paid as COP when 

employees receive third-party recoveries. 

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Comparability of FECA and 

Other Compensation Laws

We identified three major ways in which FECA differs from other federal 

and state workers’ compensation laws, each of which results in relatively 

greater benefits under FECA. First, FECA authorizes maximum weekly 

benefit amounts that are greater than those authorized by other federal and 

state workers’ compensation laws. As of January 1, 2003, maximum 

authorized weekly FECA benefits were equal to $1,596, 75 percent of the 

base salary of a GS-15, step 10. Only six states authorize additional benefits 

for dependents (about $5-$10 per week per dependent). However, one 

state authorizes an additional flat rate of $25 per week for dependents, 

regardless of the number of dependents. In all cases, the total benefits are 

not to exceed maximum authorized benefit amounts. Finally, FECA 

provides eligible workers who suffer traumatic injuries with their regular 

salary for a period not to exceed 45 days. Compensation benefits for wage 

loss begin on the 48th day, after a 3-day waiting period. All other federal 

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Revising Benefits for Cases Involving Third Parties

Discretionary Spending

Savings from the CBO baseline

Budget authority 0 1 2 2 2

Outlays 0 1 2 2 2
Appendix III

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Efficiency, and Effectiveness of Federal 

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and state workers’ compensation laws provide for a 3- to 7-day waiting 

period following the injury before paying compensation benefits. In either 

case, if employees continue to be out of work for extended periods ranging 

from 5 to 42 days, depending on the jurisdiction, retroactive benefits to 

cover the waiting period would be paid.

Reducing FECA’s authorized maximum weekly benefit to make it 

comparable to other compensation laws would have little effect on 

compensation costs because very few federal workers receive maximum 

benefits. 

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Federal Employees’ Compensation Act: Percentages of Take-Home Pay 

Replaced by Compensation Benefits. GAO/GGD-98-174. Washington, D.C.: 

August 17, 1998.

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Revising Benefits for Comparability of FECA and Other Compensation Laws

Discretionary Spending

Savings from the CBO baseline

Budget authority 11 15 25 35 45

Outlays 11 15 25 35 45

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Revising Benefits for Comparability of FECA and Other Compensation Laws

Direct Spending

Savings from the CBO baseline

Budget authority 7 13 13 13 14

Outlays 7 13 13 13 14
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 208 GAO-04-649 Opportunities for Oversight

Federal Employees’ Compensation Act: Issues Associated with Changing 

Benefits for Older Beneficiaries. GAO/GGD-96-138BR. Washington, D.C.: 

August 14, 1996.

Workers’ Compensation: Selected Comparisons of Federal and State 

Laws. GAO/GGD-96-76. Washington, D.C.: April 3, 1996.

Federal Employees’ Compensation Act: Redefining Continuation of Pay 

Could Result in Additional Refunds to the Government. GAO/GGD-95-135. 

Washington, D.C.: June 8, 1995.

GAO Contact Robert E. Robertson, (202) 512-7215
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 209 GAO-04-649 Opportunities for Oversight

Implement a Service 

Fee for Successful 

Non-Temporary 

Assistance for Needy 

Families Child Support 

Enforcement 

Collections

The Child Support Enforcement program is a federal/state/local 

partnership designed to obtain child support for both families eligible for 

Temporary Assistance for Needy Families (TANF) and non-TANF families. 

The services provided to clients include locating noncustodial parents, 

establishing paternity and support orders, and collecting and distributing 

child support payments. From fiscal years 1984 through 1998, non-TANF 

caseloads and costs rose about 500 percent and 1200 percent, respectively. 

For fiscal years 1999 through 2002, about 80 percent of the total cases were 

non-TANF cases—about 45 percent were former TANF recipients and 

about 36 percent had never received TANF benefits.

The federal government pays 66 percent of the Child Support Enforcement 

program costs. While states have the authority to fully recover the costs of 

their services, states have exercised their discretion and most have charged 

only minimal application and service fees. Since 1992, we have reported on 

opportunities to defray some of the costs of child support programs. Based 

on this work, we believe that mandatory application fees should be 

dropped and that states should be mandated to charge a minimum 

percentage service fee on successful collections for non-TANF families. 

Congressional action is necessary to put such a requirement in place. 

Application fees are administratively burdensome, and a service fee would 

ensure that families are charged only when the service has been 

successfully performed. The costs recovered from such a service fee 

would be determined by the percentage rate set by the Congress. 

CBO made the following estimates based on a service fee of 5 percent for 

each successful non-TANF child support collection.

Primary agency Department of Health and Human Services 

Account Payments to States for Child Support 

Enforcement and Family Support Programs 

(75-1501)

Spending type Direct

Budget subfunction 609/Other income security

Theme Redefine beneficiaries
Appendix III

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Five-Year Savings

Source: Congressional Budget Office.

Note: Estimates based on a service fee of 5 percent for each successful non-TANF child support 

collection.

Related GAO Products Child Support Enforcement: Clear Guidance Would Help Ensure Proper 

Access to Information and Use of Wage Withholding by Private Firms. 

GAO-02-349. Washington, D.C.: March 26, 2002.

Child Support Enforcement: Effects of Declining Welfare Caseloads Are 

Beginning to Emerge. GAO/HEHS-99-105. Washington, D.C.: June 30, 1999.

Welfare Reform: Child Support an Uncertain Income Supplement for 

Families Leaving Welfare. GAO/HEHS-98-168. Washington, D.C.: August 3, 

1998.

Child Support Enforcement: Early Results on Comparability of 

Privatized and Public Offices. GAO/HEHS-97-4. Washington, D.C.: 

December 16, 1996.

Child Support Enforcement: Reorienting Management Toward Achieving 

Better Program Results. GAO/HEHS/GGD-97-14. Washington, D.C.: 

October 25, 1996.

Child Support Enforcement: States’ Experience with Private Agencies’ 

Collection of Support Payments. GAO/HEHS-97-11. Washington, D.C.: 

October 23, 1996.

Child Support Enforcement: States and Localities Move to Privatized 

Services. GAO/HEHS-96-43FS. Washington, D.C.: November 20, 1995.

Child Support Enforcement: Opportunity to Reduce Federal and State 

Costs. GAO/T-HEHS-95-181. Washington, D.C.: June 13, 1995.

GAO Contact Cornelia M. Ashby, (202) 512-8403

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the CBO baseline

Budget authority 530 560 600 640 670

Outlays 530 560 600 640 670
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 211 GAO-04-649 Opportunities for Oversight

Improve Reporting of 

DOD Reserve 

Employee Payroll Data 

to State 

Unemployment 

Insurance Programs

The Congress established the national unemployment insurance (UI) 

system in the 1930s to provide partial income assistance to many 

temporarily unemployed workers with substantial work histories. Today, 

UI is the major federal program providing assistance to the unemployed. 

Many workers covered by the UI system were also among the 800,000 

personnel who participated in National Reserve forces (Army National 

Guard, Army Reserve, Naval Reserve, Marine Corps Reserve, Air National 

Guard, and the Air Force Reserve) in fiscal year 2002.

Most UI claimants are required to report the income they receive while in 

the Reserves so that state UI programs can reduce their benefits 

accordingly. Our 1996 analysis of benefit and Reserve data from seven 

states showed that some Reserve personnel were receiving improper 

benefit payments from state UI programs. In the seven states in our 

analysis, we estimated that UI claimants who were active participants in 

the Reserve failed to report over $7 million in Reserve income in fiscal year 

1994. This led to UI benefit overpayments of approximately $3.6 million, of 

which federal trust fund losses were about $1.2 million. We expect that the 

federal and state trust fund losses from all UI programs were much greater 

because the seven states we reviewed accounted for only 27 percent of all 

reservists.

State officials cited various reasons why claimants may not be reporting 

their Reserve income while receiving UI benefits. According to state 

officials, the claimants may not understand their reporting responsibilities, 

are often not specifically informed of these responsibilities, and may have 

incentives not to report all Reserve income—incentives that are amplified 

by the states’ limited ability to detect nonreporting.

The Department of Defense and the Department of Homeland Security’s 

Coast Guard have acted to ensure that reservists are reminded of their 

Primary agency Department of Labor 

Account Unemployment Trust Fund (20-8042)

Spending type Direct 

Budget subfunctions Multiple

Theme Redefine beneficiaries
Appendix III

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Efficiency, and Effectiveness of Federal 

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responsibility to report income from reserve activity to state UI agencies. 

All reservists now receive an annual notice with their leave and earnings 

statements reminding them of their duty to disclose their affiliation and any 

Reserve related earnings when filing an UI claim. In addition, the 

Department of Labor has issued a directive to all state employment security 

agencies to ensure that they inform prospective and continuing UI benefit 

claimants of their responsibility to report Reserve-related income.

These actions should improve general reservist compliance with state UI 

program income reporting requirements. However, to detect unreported 

Reserve income, the most frequently suggested alternative by federal and 

state officials would be to require the Department of Defense (DOD) to 

report Reserve payroll and personnel data to states on a quarterly basis, as 

private-sector employers are required to do, to permit verification of 

claimant income regularly. DOD has stated that it will develop an action 

plan to provide such data to the state UI programs. However, completion 

of this plan was delayed because of other competing agency priorities and a 

recognition that the task was more complex than originally envisioned.

It is important to note that the nonreporting of claimant income appears to 

be a broader problem involving all UI claimants who were former federal 

civilian and military employees, rather than just those participating in the 

Reserves. Officials from many of the state programs we analyzed reported 

general difficulties in monitoring reported income from claimants who 

were former federal employees.

DOD reports that, given its effort to ensure any action taken be costeffective and commensurate with potential savings, it does not intend to 

take further action to respond to this recommendation. According to DOD, 

13 states effectively exempt Reserve wages from any unemployment 

insurance payment offset, and there could be significant costs associated 

with providing automated data on the earnings of part-time reservists. We 

do not agree that implementation costs would necessarily outweigh 

savings. We found millions of dollars in unemployment insurance 

overpayments for just 7 states and 27 percent of the reservists, which 

would likely lead to even greater levels of overpayments for the remaining 

states that offset reservist wages. The potential for overpayments may be 

even greater given current national security conditions that involve a 

greater role for reservists.
Appendix III

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Efficiency, and Effectiveness of Federal 

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CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Product Unemployment Insurance: Millions in Benefits Overpaid to Military 

Reservists. GAO/HEHS-96-101. Washington, D.C.: August 5, 1996.

GAO Contact Sigurd R. Nilsen, (202) 512-7215

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the CBO baseline

Budget authority 9 10 10 11 11

Outlays 9 10 10 11 11

Reduction in receipts 0 -1 -3 -6 -8

Net effect on deficit 9 9 7 5 3
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 214 GAO-04-649 Opportunities for Oversight

Improve Social 

Security Benefit 

Payment Controls

The Social Security Administration (SSA) is required by law to reduce 

social security benefits to persons who also receive a pension from 

noncovered employment (typically persons who work for the federal 

government or state and local governmental agencies). The Government 

Pension Offset provision requires SSA to reduce benefits to persons whose 

social security entitlement is based on another person’s social security 

coverage (usually their spouse’s). The Windfall Elimination Provision 

requires SSA to use a modified formula to calculate a person’s earned social 

security benefit whenever a person also earned a pension through a 

substantial career in noncovered employment. The modified formula 

reduces the social security benefit significantly.

We found that SSA payment controls for these offsets were incomplete. 

For state and local retirees, SSA had no third-party pension data to verify 

whether persons were receiving a noncovered pension. At the time of our 

1998 report, an analysis of available data indicated that this lapse in 

payment controls for state and local government retirees cost the trust 

funds from $129 million to $323 million from 1978 to about 1995.

In 1998, we recommended that SSA work with the Internal Revenue Service 

(IRS) to revise the reporting of pension income on IRS tax form 1099R. IRS 

has subsequently advised SSA that it needs a technical amendment to the 

Tax Code to obtain the information SSA needs. In 2003, we testified that 

complete and accurate reporting of government pension income is still 

needed. Given the IRS response to our previous recommendation, we have 

provided the following matter for congressional consideration: “To 

facilitate complete and accurate reporting of government pension income, 

the Congress should consider giving IRS the authority to collect this 

information, which could perhaps be accomplished through a simple 

modification to a single form.” We believe that millions of dollars in 

Primary agency Social Security Administration

Account Federal Old Age and Survivor’s Insurance 

Trust Fund (20-8006)

Spending type Direct

Budget subfunction 651/Social security

Theme Improve efficiency
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

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reduced overpayments could be achieved each year with better payment 

controls. However, it should be noted that these savings would be offset 

somewhat by administrative costs associated with conducting additional 

computer matching at SSA. 

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Social Security: Issues Relating to Noncoverage of Public Employees. 

GAO-03-710T. Washington, D.C.: May 1, 2003.

Social Security: Better Payment Controls for Benefit Reduction 

Provisions Could Save Millions. GAO/HEHS-98-76. Washington, D.C.: April 

30, 1998.

GAO Contact Barbara D. Bovbjerg, (202) 512-7215

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the CBO baseline

Budget authority 0 0 135 275 290

Outlays 0 0 135 275 290
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 216 GAO-04-649 Opportunities for Oversight

Simplify Supplemental 

Security Income 

Recipient Living 

Arrangements

The Social Security Administration (SSA) administers the Supplemental 

Security Income (SSI) program, which is the nation’s largest cash 

assistance program for the poor. Since its inception, the SSI program has 

been difficult to administer because, similar to other means tested 

programs, it relies on complicated criteria and policies to determine initial 

and continuing eligibility and benefit levels. One of the factors considered 

is the living arrangements of the beneficiary. When determining SSI 

eligibility and benefit amounts, SSA staff apply a complex set of policies to 

document an individual’s living arrangements and any additional support 

they may be receiving from others. This process depends heavily on selfreporting by recipients of whether they live alone or with others; the 

relationships involved; the extent to which rent, food, utilities, and other 

household expenditures are shared; and exactly what portion of those 

expenses the individual pays. These numerous rules and policies have 

made living arrangement determinations one of the most complex and 

error prone aspects of the SSI program, and a major source of 

overpayments.

We have reported that SSA has not addressed long-standing SSI living 

arrangement verification problems, despite numerous internal and external 

studies and many years of quality reviews denoting this as an area prone to 

error and abuse. Some of the studies we reviewed recommended ways to 

simplify the process by eliminating many complex calculations and thereby 

making it less susceptible to manipulation by recipients. Other studies we 

reviewed suggested ways to make this aspect of the program less costly to 

taxpayers. In light of the potential cost savings associated with addressing 

this issue, we recommended in September 2002 that SSA identify and move 

forward in implementing cost-effective options for simplifying complex 

living arrangement policies, with particular attention to those policies most 

vulnerable to fraud, waste, and abuse. We also suggested that an effective 

Primary agency Social Security Administration

Account Supplemental Security Income Program 

(28-0406)

Spending types Direct/Discretionary

Budget subfunction 609/Other income security

Theme Improve efficiency
Appendix III

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approach may include pilot testing various simplification options to better 

assess their effects. SSA told us that it will use sophisticated computer 

simulations to assess the potential impacts of various proposals on 

recipients, but has not completed these efforts yet.

CBO agrees that this option would result in budgetary savings, but it could 

not develop a savings estimate.

Related GAO Products Supplemental Security Income: SSA Could Enhance Its Ability to Detect 

Residency Violations. GAO-03-724. Washington, D.C.: July 29, 2003.

Supplemental Security Income: Progress Made in Detecting and 

Recovering Overpayments, but Management Attention Should Continue. 

GAO-02-849. Washington, D.C.: September 16, 2002.

Supplemental Security Income: Status of Efforts to Improve 

Overpayment Detection and Recovery. GAO-02-962T. Washington, D.C.: 

July 25, 2002.

Supplemental Security Income: Action Needed on Long-Standing 

Problems Affecting Program Integrity. GAO/HEHS-98-158. Washington, 

D.C.: September 14, 1998.

GAO Contact Robert E. Robertson, (202) 512-7215
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 218 GAO-04-649 Opportunities for Oversight

Sustain/Expand Range 

of SSI Program 

Integrity Activities

The Social Security Administration (SSA) administers the Supplemental 

Security Income (SSI) program, which is the nation’s largest cash 

assistance program for the poor. Since its inception, the SSI program has 

been difficult and costly to administer because even small changes in 

income, available resources, or living arrangements can affect recipients’ 

monthly benefit amounts or continued eligibility. To a significant extent, 

SSA relies heavily on recipients to accurately report important eligibility 

information. The agency also verifies certain income and resource 

information through computer matching with the records of other federal 

and state agencies. To determine whether a recipient remains eligible for 

SSI benefits, SSA also periodically conducts financial redetermination 

reviews, which involve personal contact with recipients to document their 

income, resources, living arrangements, and other eligibility factors. 

Recipients are reviewed at least every 6 years, but reviews may be more 

frequent if SSA determines that changes in eligibility are likely.

We recently reported that SSA has made a variety of changes to improve its 

ability to detect SSI payment errors and recover overpayments. We also 

noted that SSA officials had estimated that conducting substantially more 

redeterminations would yield hundreds of millions of dollars in additional 

overpayment detections and preventions annually. In 2001, SSA estimated 

that it would be cost beneficial to do another 2.5 million redeterminations. 

The additional reviews would produce $1.1 billion in overpayment benefits 

(additional overpayment recoveries and future overpayments prevented). 

Subsequently, we recommended that SSA sustain and expand its program 

integrity activities. SSA processed 138,000 more financial redeterminations 

in FY 2003 than it did in FY 2002, and plans to increase redeterminations in 

FY 2004. SSA should continue to increase the number of redeterminations 

processed to the extent feasible.

Primary agency Social Security Administration

Account Supplemental Security Income Program 

(28-0406)

Spending types Direct/Discretionary

Budget subfunction 609/Other income security

Theme Improve efficiency
Appendix III

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Efficiency, and Effectiveness of Federal 

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CBO agrees that this option would result in budgetary savings, but it could 

not develop a savings estimate.

Related GAO Products Supplemental Security Income: SSA Could Enhance Its Ability to Detect 

Residency Violations. GAO-03-724. Washington, D.C.: July 29, 2003.

Supplemental Security Income: Progress Made in Detecting and 

Recovering Overpayments, but Management Attention Should Continue. 

GAO-02-849. Washington, D.C.: September 16, 2002.

Supplemental Security Income: Status of Efforts to Improve 

Overpayment Detection and Recovery. GAO-02-962T. Washington, D.C.: 

July 25, 2002.

Supplemental Security Income: Action Needed on Long-Standing 

Problems Affecting Program Integrity. GAO/HEHS-98-158. Washington, 

D.C.: September 14, 1998.

GAO Contact Robert E. Robertson, (202) 512-7215
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 220 GAO-04-649 Opportunities for Oversight

Better Congressional 

Oversight of 

PRWORA’s Fugitive 

Felon Provisions

In response to concerns that individuals wanted in connection with a 

felony, or violating terms of their parole or probation, could receive 

benefits from programs for the needy, the Congress added provisions to the 

Personal Responsibility and Work Opportunity Reconciliation Act 

(PRWORA) of 1996 that prohibit these individuals from receiving 

Supplemental Security Income (SSI) administered by the Social Security 

Administration (SSA), Food Stamp benefits administered by the 

Department of Agriculture (USDA), and Temporary Assistance to Needy 

Families (TANF) administered by the Department of Health and Human 

Services (HHS). These provisions also make fugitive felon44 status grounds 

for termination of tenancy in many federal housing assistance programs, 

administered by the Department of Housing and Urban Development 

(HUD).

In our September 2002 report, we found that, since PRWORA was enacted 

the SSI, Food Stamp, and TANF programs identified over 110,000 

beneficiaries who are fugitive felons—largely through computer matches 

of automated arrest warrant and recipient files. When these programs took 

the initiative or were in a position to match automated recipient and 

warrant data, many fugitive felons were identified, which led to substantial 

cost savings. SSA, for example, conducted the most comprehensive 

matches, comparing data from its entire SSI applicant and recipient files 

each month to warrant data it obtained from various federal, state, and 

local law enforcement agencies. SSA recently reported that, between 

August 1996 and February 2003, it identified more than 51,000 fugitive 

felons on the SSI rolls, incurring savings of over $83 million. In addition, 

SSA estimates that it may save an additional $206.9 million through 

Primary agencies Multiple

Accounts Multiple

Spending types Direct/Discretionary

Budget subfunctions Multiple

Theme Redefine beneficiaries

44Here, the term “fugitive felons” also refers to probation and parole violators.
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 221 GAO-04-649 Opportunities for Oversight

recovery of fugitive felon overpayments for months up to and including 

February 2003.

Use of computer matches of benefit recipient and arrest warrant files to 

prevent fugitive felons from collecting benefits varies widely across 

programs, however. While SSA had by far the most comprehensive 

computer matching initiative, fewer than one-third of the state agencies 

administering the TANF and Food Stamp programs used periodic computer 

matching, to any extent. HUD had not conducted any matches of this kind 

since the enactment of PRWORA in 1996, but our own match of HUD’s 

recipient file and arrest warrant files in a single year turned up nearly 1,000 

housing assistance recipients for whom there were arrest warrants in Ohio 

and Tennessee, alone. We estimated that HUD could have saved $4.2 

million annually in program costs if the housing assistance these 

individuals received had been terminated.

Given the savings SSA and some state Food Stamp and TANF programs 

have incurred using computer matching to identify and drop fugitive felons 

from their benefit rolls, and the potential savings we demonstrated HUD 

could achieve in the same way, use of computer matching for this purpose 

by additional state Food Stamp and TANF programs, as well as the HUD 

housing assistance program, represent opportunities for greater cost 

savings in this area.

Moreover, the law, as it applies to housing assistance programs, states that 

fugitive felon status is only grounds for termination of tenancy and not that 

fugitive felons are ineligible for housing assistance. Therefore, according 

to HUD officials, while public housing agencies and landlords have the 

authority to evict fugitive felons, they are not required to do so. This may 

explain why HUD has done little to ensure that fugitive felons do not 

receive housing assistance. The Congress may wish to consider amending 

the Housing Act of 1937 to explicitly make fugitive felons ineligible for 

housing benefits.

CBO was not able to determine if this option would result in a budget 

savings.

Related GAO Products Welfare Reform: Implementation of Fugitive Felon Provisions Should Be 

Strengthened. GAO-02-716. Washington, D.C.: September 25, 2002.
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 222 GAO-04-649 Opportunities for Oversight

Social Security Administration: Fugitive Felon Program Could Benefit 

from Better Use of Technology. GAO-02-346. Washington, D.C.: September 

6, 2002.

Social Security Programs: The Scope of SSA’s Authority to Deny Benefits 

to Fugitive Felons and to Release Information About OASI and DI 

Beneficiaries Who are Fugitive Felons. GAO-02-459R. Washington, D.C.: 

February 27, 2002.

GAO Contact Robert E. Robertson, (202) 512-7215
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 223 GAO-04-649 Opportunities for Oversight

Improve the 

Administrative 

Oversight of Food 

Assistance Programs

The U.S. Department of Agriculture (USDA) continues to face serious 

challenges in ensuring that eligible individuals receive the proper benefits 

from the food assistance programs administered by its Food and Nutrition 

Service. Each day, about 1 in every 5 Americans receives nutrition 

assistance through 1 or more of the 15 programs administered by this 

agency. These programs, which accounted for more than half of USDA’s 

budget authority for fiscal year 2003, provide children and low-income 

adults with access to food, a healthful diet, and nutrition education. 

Specifically, for fiscal year 2003, the Congress appropriated about $41.9 

billion to operate these programs, including the Food Stamp Program and 

child nutrition programs, such as the school-breakfast and school-lunch 

programs. This high level of support dictates that USDA must continually 

address and minimize the amount of fraud and abuse occurring in these 

programs in order to ensure their integrity.

USDA’s Food Stamp Program, the cornerstone of its nutrition assistance 

programs, provided 21.3 million individuals with more than $21.4 billion in 

benefits in fiscal year 2003. As noted in the President’s Management 

Agenda, USDA must continue to address the challenge of accurately 

issuing food stamp benefits to those who are eligible. Specifically, USDA 

estimated that about $1.4 billion in erroneous payments were made to food 

stamp recipients in fiscal year 2001—about $1 billion of the benefits issued 

were estimated to be overpayments and more than $370 million of the 

benefits issued were estimated to be underpayments—an error rate of 

approximately 9 percent. To deal with the complexity of the Food Stamp 

Program and the high error rate, the 2002 Farm Bill contained a number of 

administrative and simplification reforms, such as allowing states to use 

greater flexibility in considering the income of recipients for eligibility 

purposes and to extend simplified reporting procedures for all program 

recipients.

Primary agency Department of Agriculture

Accounts Multiple

Spending types Direct/Discretionary

Budget subfunction 605/Food and nutrition assistance

Theme Improve efficiency
Appendix III

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In addition to ensuring that eligible individuals receive proper benefits, 

USDA faces the challenge of minimizing the illegal sale of benefits for 

cash—a practice known as trafficking. Food Stamps are accepted by about 

152,000 authorized retail food stores, and in a July 2003 report, USDA 

estimated that stores trafficked about $395 million, or about 2.5 cents of 

every dollar of food stamp benefits issued per year from 1999 through 2002. 

In addition, store owners generally do not pay the financial penalties 

assessed for trafficking. In May 1999, we reported that USDA and the 

courts collected only $11.5 million, or about 13 percent, of the $78 million 

in total penalties assessed against storeowners for violating food stamp 

regulations from 1993 through 1998.45 USDA reduced the remaining 

amount owed by storeowners by about $49 million, or about 55 percent, 

through waivers, adjustments, and write-offs. While weaknesses in debt 

collection practices contribute to low collection rates, USDA officials 

noted that these rates also reflect the difficulties involved in collecting this 

type of debt, including problems in locating storeowners who have been 

removed from the Food Stamp Program and the refusal of some 

storeowners to pay their debts.

Better use of information technology has the potential to help USDA 

minimize fraud, waste, and abuse in the Food Stamp Program. For 

example, in our May 1999 report we recommended that the Food and 

Nutrition Service make better use of data from electronic benefit transfers 

(EBT) to identify and assess penalties against storeowners who violate the 

Food Stamp Program’s regulations. Since that time, they have developed a 

new EBT-based technique for fighting trafficking that has become an 

important source of findings of trafficking. Also, we recommended in 

March 2000 that the Food and Nutrition Service work with the states to 

implement best practices for using EBT data to identify and take action 

against recipients engaged in trafficking of food stamp benefits.46 The 

Food and Nutrition Service has taken some actions to implement this 

recommendation, by providing increased financial incentives for states to 

be more aggressive in pursuing recipients who traffic food stamp benefits 

and by assisting states in the use of EBT data to identify traffickers.

45U.S. General Accounting Office, Food Stamp Program: Storeowners Seldom Pay 

Financial Penalties Owed for Program Violations, GAO/RCED-99-91 (Washington, D.C.: 

May 11, 1999).

46U.S. General Accounting Office, Food Stamp Program: Better Use of Electronic Data 

Could Result in Disqualifying More Recipients Who Traffic Benefits, GAO/RCED-00-61

(Washington, D.C.: Mar. 7, 2000).
Appendix III

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USDA also faces fraud and abuse challenges in other nutrition programs, 

including the Child and Adult Care Food Program (CACFP), which for 

fiscal year 2003 was funded at $1.9 billion, and the National School Lunch 

and School Breakfast programs, which for that year were funded at $8.8 

billion. In fiscal year 2003, CACFP provided subsidized meals for a daily 

average of 2.9 million participants in the care of about 215,000 day care 

providers. Over the years, USDA’s Office of Inspector General (OIG) has 

identified examples of the intentional misuse of CACFP funds, including 

cases in which program sponsors created fictitious day care providers and 

inflated the number of meals served. In response to our November 1999 

recommendation47 and reports by the OIG, legislation was enacted in June 

2000 to strengthen CACFP management controls and to reduce its 

vulnerability to fraud and abuse. As a result, the Food and Nutrition 

Service has intensified its management evaluations at the state and local 

levels and has trained its regional and state agency staff on revised 

management procedures.

Furthermore, in its strategic plan for fiscal years 2000 through 2005, USDA 

specifically identified the challenge it faces in ensuring that only eligible 

participants are provided benefits in the National School Lunch Program. 

In fiscal year 2003, this program provided nutritionally balanced, low-cost 

or free lunches for over 28 million children each school day in more than 

99,000 public and nonprofit private schools and residential child care 

institutions. One study found that the number of children certified as 

eligible to receive free lunches in this program might have been as much as 

27 percent greater than the number of children estimated eligible for this 

benefit. However, this estimate was based on a broad review of certain 

Census data and is best seen as an indicator of a problem rather than a 

precise measure of program misuse. USDA has taken some initial steps to 

develop a cost-effective strategy to address this integrity issue. One option 

for Congress to consider as it reauthorizes this program is to direct that 

USDA take steps to ensure that only eligible children receive low-cost or 

free lunches. USDA pilot tested certain policy changes and suggested other 

measures for Congress to consider during reauthorization. However, the 

agency believes more research and evaluation on the nature and extent of 

the problem would be invaluable in identifying additional measures to 

47U.S. General Accounting Office, Food Assistance: Efforts to Control Fraud and Abuse in 

the Child and Adult Care Food Program Should Be Strengthened, GAO/RCED-00-12

(Washington, D.C.: Nov. 29, 1999).
Appendix III

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improve program integrity without simultaneously deterring participation 

by eligible children.

CBO was not able to determine if this option would result in a budget 

savings.

Related GAO Products Food Stamp Program: Better Use of Electronic Data Could Result in 

Disqualifying More Recipients Who Traffic Benefits. GAO/RCED-00-61. 

Washington, D.C.: March 7, 2000.

Food Assistance: Efforts to Control Fraud and Abuse in the Child and 

Adult Care Food Program Should Be Strengthened. GAO/RCED-00-12. 

Washington, D.C.: November 29, 1999.

Food Stamp Program: Storeowners Seldom Pay Financial Penalties 

Owed for Program Violations. GAO/RCED-99-91. Washington, D.C.: May 

11, 1999.

GAO Contacts Sigurd R. Nilsen, (202) 512-7003

David Bellis, (415) 904-2272
Appendix III

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Efficiency, and Effectiveness of Federal 

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Share the Savings from 

Bond Refundings

During the 1970s and early 1980s, the Department of Housing and Urban 

Development (HUD) administered programs to develop housing for lowincome households using various types of financing arrangements and 

long-term Section 8 rental housing assistance contracts. While some 

properties were financed by loans and grants from HUD, others were 

financed by bonds issued by state and local housing finance agencies. 

During the late 1970s and early 1980s, the cost to finance housing 

development rose to unprecedented levels. In response, HUD authorized 

higher Section 8 rental assistance payments to cover the higher bond 

financing costs, first in 1980 and then in 1981. Since then, as interest rates 

declined, many state and local housing finance agencies have refunded the 

bonds they issued and issued new bonds at lower interest rates. This 

action has generated substantial savings for the state agencies. These 

savings represent the difference between the amounts needed to repay the 

original bonds and the lower amounts needed to repay the new bonds. 

Agencies typically use these savings to provide affordable housing in their 

states.

In 1999, we reported that HUD had not issued clear guidance on when state 

agencies are required to share the savings associated with bond refundings 

with the federal government. The need for clearer guidance specifically 

relates to state agency compliance with the bond refunding provisions in an 

October 1992 amendment to Section 1012 of the McKinney Act. The 

amendment was unclear as to whether the states were required to share the 

savings from bond refundings with the federal government for all 

properties covered by Section 8 rental assistance contracts that were 

entered into from 1979 through 1984. In the absence of clear guidance from 

HUD, we found that some state agencies have shared the savings from 

bond refunding for such properties with the federal government while 

other agencies have retained the savings.

Primary agency Department of Housing and Urban 

Development

Account Housing Certificate Fund (86-0319)

Spending types Discretionary/Direct

Budget subfunction 604/Housing assistance

Theme Redefine beneficiaries
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Legislative changes could be made to clarify the Congress’s intent that state 

agencies should be required to share bond refunding savings with the 

federal government for all properties covered by Section 8 rental assistance 

contracts entered into from 1979 through 1984.

CBO agrees that this option would result in budgetary savings, but it could 

not develop a savings estimate.

Related GAO Product Multifamily Housing: HUD Missed Opportunities to Reduce Costs on Its 

Uninsured Section 8 Portfolio. GAO/RCED-99-217. Washington, D.C.: July 

30, 1999.

GAO Contact Thomas J. McCool, (202) 512-8678
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 229 GAO-04-649 Opportunities for Oversight

Reduce Federal 

Funding Participation 

Rate for Automated 

Child Support 

Enforcement Systems

The Department of Health and Human Services’ (HHS) Office of Child 

Support Enforcement (OCSE) oversees states’ efforts to develop 

automated systems for the Child Support Enforcement Program. 

Established for both welfare and nonwelfare clients with children, this 

program is directed at locating parents not supporting their children, 

establishing paternity, obtaining court orders for the amounts of money to 

be provided, and collecting these amounts from noncustodial parents. 

Achievement of Child Support Enforcement Program goals depends in part 

on the effective planning, design, and operation of automated systems. The 

federal government is providing enhanced funding to develop these 

automated child support enforcement systems by paying up to 90 percent 

of states’ development costs. From fiscal year 1981 through fiscal year 

2002, the states reportedly spent about $7.0 billion to develop these 

systems, including about $5.0 billion from the federal government.

The 90 percent funding participation rate for development costs was 

initially discontinued at the end of fiscal year 1995, the congressionally 

mandated date for the systems to be certified and operational. However, 

the Congress subsequently extended the deadline for these systems to the 

end of fiscal year 1997. The federal government will continue to reimburse 

states’ costs to operate these systems at the 66 percent rate established for 

administrative expenses. The Personal Responsibility and Work 

Opportunity Reconciliation Act of 1996 (P.L. 104-193) provided additional 

funding for the states to meet new systems requirements under this law. 

An 80 percent federal funding participation rate for development costs, 

with a total national funding cap of $400 million, was authorized through 

fiscal year 2001. The 66 percent federal funding participation rate was 

continued for systems operation costs.

Primary agency Department of Health and Human Services

Account Payments to States for Child Support 

Enforcement and Family Support Programs 

(75-1501)

Spending type Direct

Budget subfunction 609/Other income security

Theme Improve efficiency
Appendix III

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The Congress could choose to reduce the federal funding participation rate 

for modification and operation of these systems from 66 percent to the 50 

percent rate now common for such costs in other programs, such as Food 

Stamps and other welfare programs. 

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Human Services: Federal Approval and Funding Processes for States’ 

Information Systems. GAO-02-347T. Washington, D.C.: July 9, 2002.

Child Support Enforcement: Leadership Essential to Implementing 

Effective Automated Systems. GAO/T-AIMD-97-162. Washington, D.C.: 

September 10, 1997.

Child Support Enforcement: Strong Leadership Required to Maximize 

Benefits of Automated Systems. GAO/AIMD-97-72. Washington, D.C.: June 

30, 1997.

GAO Contact Joel C. Willemssen, (202) 512-6408

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the CBO baseline 

Budget authority 240 260 270 280 280

Outlays 240 260 270 280 280
Appendix III

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Efficiency, and Effectiveness of Federal 

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700 Veterans Benefits 

and Services

Discontinue Veterans’ Disability Compensation for Nonservice Connected 

Diseases

Revise VA’s Disability Ratings Schedule to Better Reflect Veterans’ 

Economic Losses

Reassess Unneeded Health Care Assets within the Department of Veterans 

Affairs

Reducing VA Inpatient Food and Laundry Service Costs
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

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Discontinue Veterans’ 

Disability 

Compensation for 

Nonservice Connected 

Diseases

In fiscal year 2002, the Department of Veterans Affairs (VA) paid more than 

$18.5 billion in compensation to more than 2.3 million veterans for serviceconnected disabilities. A disease or injury resulting in disability is 

considered service-connected if it was incurred or aggravated during 

military service. No causal connection is required. In 1989, GAO reported 

on the U.S. practice of compensating veterans for conditions that were 

probably neither caused nor aggravated by military service. These 

conditions included diabetes, chronic obstructive pulmonary disease, 

arteriosclerotic heart disease, and multiple sclerosis. In 1993, GAO 

reported that other countries were less likely to compensate veterans when 

diseases were unrelated to military service, when the relationship of the 

disease to military service could not be established, or for off-duty injuries 

such as those that happen while on vacation.

The Congress may wish to reconsider whether diseases neither caused nor 

aggravated by military service should be compensated as serviceconnected disabilities. In 1996, the CBO reported that about 230,000 

veterans were receiving about $1.1 billion in disability compensation 

payments annually for diseases neither caused nor aggravated by military 

service.

Primary agency Department of Veterans Affairs 

Account Compensation and Pensions (36-0102)

Spending type Direct

Budget subfunction 701/Income security for veterans

Theme Redefine beneficiaries
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CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

The Congress may also wish to consider enacting legislation proposed by 

VA to prohibit the payment of compensation for a disability related to drug 

or alcohol abuse, even if it is secondary to a service-connected disability 

such as Post-Traumatic Stress Disorder. Payment of VA compensation for 

alcohol or drug abuse related disabilities as a primary service-connected 

condition has been expressly prohibited by law since 1990. VA proposed 

this legislation in response to a February 2001 court decision that allowed 

VA to compensate veterans for substance abuse-related disabilities if they 

arose secondarily from a service-connected disability. VA estimated that 

this legislative change, if enacted, would lead to savings of $55.1 million in 

fiscal year 2004, and $2.8 billion over 10 years.

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products VA Benefits: Fundamental Changes to VA’s Disability Criteria Need 

Careful Consideration. GAO-03-1172T. Washington, D.C.: September 23, 

2003.

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings of Discontinuing Compensation for Non-service Connected Diseases

Budget authority 20 61 94 130 158

Outlays 20 61 91 128 156

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from Prohibiting Payment of Compensation for Alcohol or Drug Abuse

Budget authority 9 14 19 24 29

Outlays 9 14 19 24 29
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 234 GAO-04-649 Opportunities for Oversight

SSA and VA Disability Programs: Re-Examination of Disability Criteria 

Needed to Help Ensure Program Integrity. GAO-02-597. Washington, D.C.: 

August 9, 2002.

VA Disability Compensation: Disability Ratings May Not Reflect 

Veterans’ Economic Losses. GAO/HEHS-97-9. Washington, D.C.: January 7, 

1997.

Disabled Veterans Programs: U.S. Eligibility and Benefit Types 

Compared With Five Other Countries. GAO/HRD-94-6. Washington, D.C.: 

November 24, 1993.

VA Benefits: Law Allows Compensation for Disabilities Unrelated to 

Military Service. GAO/HRD-89-60. Washington, D.C.: July 31, 1989.

GAO Contact Cynthia A. Bascetta, (202) 512-7101
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 235 GAO-04-649 Opportunities for Oversight

Revise VA’s Disability 

Ratings Schedule to 

Better Reflect 

Veterans’ Economic 

Losses

The Department of Veterans Affairs’ (VA) disability program is required by 

law to compensate veterans for the average loss in earning capacity in 

civilian occupations that results from injuries or conditions incurred or 

aggravated during military service. Veterans with such service-connected 

disabilities are entitled to monthly cash benefits under this program even if 

they are working and regardless of the amount they earn. The amount of 

compensation received is based on disability ratings that VA assigns to the 

service-connected conditions. In fiscal year 2002, VA paid more than $22 

billion in compensation to more than 2.3 million veterans, and more than 

300,000 veterans’ survivors and children, for these service-connected 

disabilities.

The disability ratings schedule that VA uses is still primarily based on 

physicians’ and lawyers’ judgments made in 1945 about the effect serviceconnected conditions had on the average individual’s ability to perform 

jobs requiring manual or physical labor. Although the ratings in the 

schedule have not changed substantially since 1945, dramatic changes have 

occurred in the labor market and in society. The results of an economic 

validation of the schedule conducted in the late 1960s indicated that ratings 

for many conditions did not reflect the actual average loss in earnings 

associated with them. Therefore, it is likely that some of the ratings in the 

schedule do not reflect the economic loss experienced by veterans today. 

Hence, the schedule may not equitably distribute compensation funds 

among disabled veterans.

The Congress may wish to consider directing VA to determine whether the 

ratings for conditions in the schedule correspond to veterans’ average loss 

in earnings due to these conditions and adjust disability ratings 

accordingly. Generally accepted and widely used approaches exist to 

statistically estimate the effect of specific service-connected conditions on 

veterans’ average earnings. These estimates could be used to set disability 

Primary agency Department of Veterans Affairs

Account Compensation and Pensions (36-0102)

Spending type Direct

Budget subfunction 701/Income security for veterans

Theme Reassess objectives
Appendix III

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ratings in the schedule that are appropriate in today’s socioeconomic 

environment. In 1997, we reported the cost to collect the data to produce 

these estimates was projected to be between $5 million and $10 million, 

which would be a small fraction of the more than $22 billion VA paid in 

disability compensation to veterans and their families in fiscal year 2002. 

Any savings associated with this option would depend on how the new 

disability schedule alters payments to beneficiaries. A reexamination of 

the disability schedule could find that some conditions are overpaid while 

others may require increased payments. 

CBO was not able to determine the budgetary effect of this option.

Related GAO Products VA Benefits: Fundamental Changes to VA’s Disability Criteria Need 

Careful Consideration. GAO-03-1172T. Washington, D.C.: September 17, 

2003.

Department of Veterans Affairs: Key Management Challenges in Health 

and Disability Programs. GAO-03-756T. Washington, D.C.: May 8, 2003.

SSA and VA Disability Programs: Re-Examination of Disability Criteria 

Needed to Help Ensure Program Integrity. GAO-02-597. Washington, D.C.: 

August 9, 2002.

VA Disability Compensation: Disability Ratings May Not Reflect 

Veterans’ Economic Losses. GAO/HEHS-97-9. Washington, D.C.: January 7, 

1997.

GAO Contact Cynthia A. Bascetta, (202) 512-7101
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 237 GAO-04-649 Opportunities for Oversight

Reassess Unneeded 

Health Care Assets 

within the Department 

of Veterans Affairs

The Department of Veterans Affairs (VA) health care system owns 4,900 

buildings and 15,500 acres of land. Its health care delivery system includes 

over 160 major medical facilities and over 500 community based outpatient 

clinics. To improve the delivery of health care services, VA has shifted 

emphasis from inpatient to outpatient care in many instances and 

shortened lengths of stay when hospitalization was required. This change 

in health care delivery has resulted in excess inpatient capacity at many 

locations. As a result, VA’s infrastructure is not efficiently aligned to meet 

veterans’ needs. Without a realignment of its infrastructure, VA will 

continue to spend millions of dollars to operate unneeded VA facilities and 

miss the opportunity to reinvest the savings it could realize from asset 

realignment into better health care for all veterans.

In response to GAO concerns, VA initiated its Capital Asset Realignment for 

Enhanced Services (CARES) program to realign its assets and resources to 

better serve veterans. Any realignment—which could include facility 

closings—will take into consideration future directions in health care 

delivery, demographic projections, physical plant capacity, community 

health care capacity, and workforce requirements. VA plans to reinvest 

savings generated through the implementation of CARES to meet veterans’ 

health care needs. VA plans to announce its proposed realignment plan in 

early calendar year 2004. Continued congressional oversight is warranted 

to review VA’s plans and assess their impact on costs and services. 

CBO was not able to determine the budgetary effect of this option.

Related GAO Products Department of Veterans Affairs: Key Management Challenges in Health 

and Disability Programs. GAO-03-756T. Washington, D.C.: May 8, 2003.

Primary agency Department of Veterans Affairs

Account Medical Care (36-0160)

Spending type Discretionary

Budget subfunction 703/Hospital and medical care for veterans

Theme Improve efficiency
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 238 GAO-04-649 Opportunities for Oversight

VA Health Care: Improved Planning Needed for Management of Excess 

Real Property. GAO-03-326. Washington, D.C.: January 29, 2003.

VA Health Care: VA Is Struggling to Address Asset Realignment 

Challenges. GAO/T-HEHS-00-88. Washington, D.C.: April 5, 2000.

VA Health Care: Improvements Needed in Capital Asset Planning and 

Budgeting. GAO/HEHS-99-145. Washington, D.C.: August 13, 1999.

VA Health Care: Challenges Facing VA in Developing an Asset 

Realignment Process. GAO/T-HEHS-99-173. Washington, D.C.: July 22, 

1999.

Veterans’ Affairs: Progress and Challenges in Transforming Health Care. 

GAO/T-HEHS-99-109. Washington, D.C.: April 15, 1999.

VA Health Care: Capital Asset Planning and Budgeting Need 

Improvement. GAO/T-HEHS-99-83. Washington, D.C.: March 10, 1999.

VA Health Care: Closing a Chicago Hospital Would Save Millions and 

Enhance Access to Services. GAO/HEHS-98-64. Washington, D.C.: April 16, 

1998.

VA Health Care: Opportunities to Enhance Montgomery and Tuskegee 

Service Integration. GAO/T-HEHS-97-191. Washington, D.C.: July 28, 1997.

VA Health Care: Lessons Learned From Medical Facility Integrations. 

GAO/T-HEHS-97-184. Washington, D.C.: July 24, 1997.

Department of Veterans Affairs: Programmatic and Management 

Challenges Facing the Department. GAO/T-HEHS-97-97. Washington, D.C.: 

March 18, 1997.

VA Health Care: Opportunities for Service Delivery Efficiencies Within 

Existing Resources. GAO/HEHS-96-121. Washington, D.C.: July 25, 1996.

VA Health Care: Opportunities to Increase Efficiency and Reduce 

Resource Needs. GAO/T-HEHS-96-99. Washington, D.C.: March 8, 1996.

VA Health Care: Challenges and Options for the Future. GAO/T-HEHS-95-

147. Washington, D.C.: May 9, 1995.
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 239 GAO-04-649 Opportunities for Oversight

GAO Contact Cynthia A. Bascetta, (202) 512-7101
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 240 GAO-04-649 Opportunities for Oversight

Reducing VA Inpatient 

Food and Laundry 

Service Costs

The Department of Veterans Affairs (VA) provides inpatient food services 

and laundry processing for thousands of inpatients a day in hospitals, 

nursing homes, and domiciliaries. In fiscal year 1999, VA spent about $324 

million (food service) and $52 million (laundry) for these activities and 

employed 7,000 Nutrition and Food Service (NFS) wage-grade workers, not 

including dietitians and 1,100 laundry processing workers. The NFS 

workers cook and prepare food, distribute food to patients, and retrieve 

and wash plates, trays, and utensils. The laundry processing workers sort, 

wash, dry, fold, and transport laundry.

As of November 2000, VA had consolidated 28 of its food production 

locations into 10, begun using less expensive Veterans Canteen Service 

(VCS) workers in 9 locations, and contracted out in 2 locations. For 

laundry services, VA had consolidated 116 of its laundries into 67 locations 

and used competitive sourcing to contract with the private sector in other 

locations.

VA has the potential to further reduce its inpatient food service and laundry 

costs by systematically assessing, at all its health care delivery locations, 

options it is already using at some of its health care locations. For 

example, VA could consolidate food production locations within a 90-

minute driving distance of each other and laundry locations within a 4-hour 

driving distance of each other. VA could also use less expensive VCS 

employees at all inpatient food locations. In addition, competitive sourcing 

could be a cost effective alternative for providing both food and laundry 

services.

VA has established a plan to complete studies of competitive sourcing of 

55,000 positions, including about 13,000 laundry and food service positions, 

by 2008. However, VA has suspended this effort because its general 

counsel determined that VA could not use Veterans Health Administration 

Primary agency Department of Veterans Affairs

Account Medical Care (VA) (36-0160)

Spending type Discretionary

Budget subfunction 703/Hospital and medical care for veterans

Theme Improve efficiency
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 241 GAO-04-649 Opportunities for Oversight

appropriations for such studies without specific authorization from the 

Congress. VA has requested that Congress grant it this authorization. 

CBO agrees that the option may result in savings, but it could not develop a 

savings estimate for this option.

Related GAO Products VA Health Care: Consolidations and Competitive Sourcing of Laundry 

Service Could Save Millions. GAO-01-61. Washington, D.C.: November 30, 

2000.

VA Health Care: Expanding Food Service Initiatives Could Save Millions. 

GAO-01-64. Washington, D.C.: November 30, 2000.

VA Health Care: Laundry Service Operations and Costs. GAO/HEHS-00-

16. Washington, D.C.: December 21, 1999.

VA Health Care: Food Service Operations and Costs at Inpatient 

Facilities. GAO/HEHS-00-17. Washington, D.C.: November 19, 1999.

GAO Contact Cynthia A. Bascetta, (202) 512-7101
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 242 GAO-04-649 Opportunities for Oversight

800 General 

Government; 900 Net 

Interest; 999 Multiple

Taking a Strategic Approach Could Improve Federal Agencies’ Acquisition 

of Costs of Supplies and Services 

Improper Benefit Payments Could Be Avoided or More Quickly Detected if 

Data from Various Programs Were Shared

Prevent Delinquent Taxpayers from Benefiting from Federal Credit 

Programs

Increase Fee Revenue from Federal Reserve Operations

Eliminate the 1-Dollar Note 

Better Target Infrastructure Investments to Meet Mission and ResultsOriented Goals

Identify and Dispose of Unneeded Real Property Assets Held by GSA

Target Funding Reductions in Formula Grant Programs

Adjust Federal Grant Matching Requirements

Consolidate Grants for First Responders to Improve Efficiency

Improve IRS’s Ability to Collect Delinquent Taxes
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 243 GAO-04-649 Opportunities for Oversight

Taking a Strategic 

Approach Could 

Improve Federal 

Agencies’ Acquisition 

of Supplies and 

Services

Federal agencies procured more than $250 billion in goods and services 

during fiscal year 2002. Additionally, federal civilian agencies spent over 

$15 billion using purchase cards in fiscal year 2002. Further growth in 

contract spending, at least in the short term, is likely given the President’s 

request for additional funds for defense and homeland security, agencies’ 

plans to update their information technology systems, and other factors.

The growth in contract spending, combined with decreases in the 

acquisition workforce, creates a challenging acquisition environment. The 

degree to which individual agencies contract for goods and services also 

underscores the importance of ensuring that acquisitions are managed 

properly. This money, however, is not always well spent. Our work, as well 

as the work of other oversight agencies, continues to find that millions of 

dollars of service contract dollars are at risk at defense and civilian 

agencies because acquisitions are poorly planned, not adequately 

competed, or poorly managed. Moreover, because agency procurement 

processes are decentralized and uncoordinated, it is not apparent that the 

federal government is fully leveraging its enormous buying power to obtain 

the most advantageous terms and conditions for its purchases. With the 

events of September 11, and the federal government’s short- and long-term 

budget challenges, it is more important than ever that agencies effectively 

transform business processes to ensure that the federal government gets 

the most from every dollar spent.

In view of these challenges, we have examined alternative ways developed 

by leading companies to manage their spending on goods and services in 

order to reduce costs, stay competitive, and improve service levels. 

Leading companies are taking a strategic approach—centralizing and 

reorganizing their procurement operations to get the best value for the 

company as a whole. Taking a strategic approach involves a range of 

activities from developing a better picture of what the company was 

Primary agencies Multiple

Accounts Multiple

Spending type Discretionary

Theme Improve efficiency
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spending to buying goods and services on a corporate rather than business 

unit basis.

A strategic approach pulls together participants from a variety of places 

within an organization who recommend changes in personnel, processes, 

structure, and culture that can constrain rising acquisition costs. These 

changes can include adjustments to procurement and other processes such 

as instituting companywide purchasing of specific services; reshaping a 

decentralized process to follow a more center-led, strategic approach; and 

increasing the involvement of the enterprise procurement organization, 

including working across units to help identify requirements, select 

providers, and manage contractor performance.

The procurement best practices of leading companies should be 

considered in reforming the acquisition of goods and services in the federal 

government. Taking a strategic approach clearly pays off. One recent 

survey of 147 companies in 22 industries indicated a strategic approach to 

procurement had resulted in savings of more than $13 billion in one year. 

Studies have reported some companies achieving reported savings of 10 to 

20 percent of their total procurement costs through the use of a strategic 

approach to buying goods and services. The leading companies we studied 

reported achieving and expecting to achieve billions of dollars in savings by 

developing companywide spend analysis programs and strategic sourcing 

strategies.

Thus far, our work has focused on applying best practices to improving 

Department of Defense (DOD) acquisition of services—an agency where 

spending on information technology, administrative support, research and 

development and a wide range of other services is approaching $100 billion 

annually. Recent legislation intends for DOD to manage its services 

procurement more effectively by promoting the use of best commercial 

practices. As a result, DOD is in the early stages of a pilot to analyze 

spending data from a DOD-wide perspective. The pilot is expected to 

identify 5 to 10 categories of smaller service requirements that can be 

consolidated for large-scale savings opportunities and other efficiencies 

over the current decentralized contracting environment. The military 

departments are also in the early stages of separate initiatives that may lead 

them to adopt a strategic approach to buying services at lower cost. Such 

commercial best practices could also benefit civilian agencies’ 

procurement by leveraging buying power to reduce costs of supplies and 

services. 
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CBO was not able to determine if this option would result in a budgetary 

savings.

Related GAO Products Contract Management: High-Level Attention Needed to Transform DOD 

Services Acquisition. GAO-03-935. Washington, D.C.: September 10, 2003.

Best Practices: Improved Knowledge of DOD Service Contracts Could 

Reveal Significant Savings. GAO-03-661. Washington, D.C.: June 10, 2003.

Federal Procurement: Spending and Workforce Trends. GAO-03-443. 

Washington, D.C.: April 30, 2003.

Sourcing and Acquisition: Challenges Facing the Department of Defense.

GAO-03-574T. Washington, D.C.: March 19, 2003.

Major Management Challenges and Program Risks: Department of 

Defense. GAO-03-98. Washington, D.C.: January 2003.

Contract Management: Taking a Strategic Approach to Improving 

Services Acquisition. GAO-02-499T. Washington, D.C.: March 7, 2002.

Best Practices: Taking a Strategic Approach Could Improve DOD’s 

Acquisition of Services. GAO-02-230. Washington, D.C.: January 18, 2002.

Contract Management: Trends and Challenges in Acquiring Services. 

GAO-01-753T. Washington, D.C.: May 22, 2001.

GAO Contact David E. Cooper, (617) 788-0555
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Improper Benefit 

Payments Could Be 

Avoided or More 

Quickly Detected if 

Data from Various 

Programs Were Shared

Many federally funded benefit and loan programs rely on applicants and 

current recipients to accurately report information, such as the amount of 

income they earn, that affects their eligibility for assistance. To the extent 

that such information is underreported or not reported at all, the federal 

government overpays benefits or provides loans to individuals who are 

ineligible. Others and we have demonstrated that federally funded benefit 

and loan programs, such as housing and higher education assistance, have 

made hundreds of millions of dollars in improper payments. Some of these 

payments were made improperly because the federal, state, and local 

entities that administer the programs sometimes lacked adequate, timely 

data needed to determine applicants’ and current recipients’ eligibility for 

assistance. Our previous work has demonstrated that improper payments 

can be avoided or detected more quickly by using data from other 

programs, or data maintained for other purposes, to verify self-reported 

information.

Federally funded benefit and loan programs provide cash or in-kind 

assistance to individuals who meet specified eligibility criteria. Because 

these programs require similar information to make eligibility 

determinations, it is more efficient to share the necessary data with one 

another rather than requiring each program to independently verify similar 

data. These programs may verify self-reported information by comparing 

their records with independent, third-party data sources from other federal 

or state agencies as well as private organizations. For example, benefit and 

loan programs can compare large amounts of information on applicants 

and recipients by using computers to match automated records. Electronic 

transmission of data and on-line access to agencies’ databases are 

additional tools program administrators can use to share important 

information on applicants and recipients in a timely, efficient manner. If 

used consistently, they can help program administrators check the 

accuracy of individuals’ self-reported statements as well as identify 

Primary agencies Multiple

Accounts Multiple

Spending types Direct/Discretionary

Budget subfunctions Multiple

Theme Improve efficiency
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information relevant to eligibility that the applicants and recipients 

themselves have not provided.

Various opportunities exist for federal, state, and local agencies to save 

taxpayer dollars by sharing information that affects individuals’ eligibility 

for benefits. For example, based on a study that matched Department of 

Education (Education) and Internal Revenue Service (IRS) income 

information, the Education estimates that it made approximately $602 

million in grant overpayments during fiscal years 2001 and 2002. Access to 

IRS taxpayer information could have helped Education prevent some of 

these overpayments. Improper payments could also be avoided or 

detected more quickly in other programs. For example, four states and the 

District of Columbia estimate that they prevented about $16 million in 

improper Temporary Assistance to Needy Children (TANF), Medicaid, and 

Food Stamp benefit payments by participating in the Public Assistance 

Reporting Information System (PARIS). PARIS could also help other states 

save program funds by identifying and preventing future improper 

payments.

The three federally funded benefit and loan programs we examined—

TANF, Tenant-Based Section 8 and Public Housing, and student grants and 

loans—all use data sharing to varying degrees to verify information that 

applicants and current benefit recipients provide. However, the 

weaknesses in these programs’ eligibility determination processes could be 

mitigated if additional data sources were available for sharing. For 

example, the Congress could grant the Department of Education access to 

IRS taxpayer data, which could reduce overpayments in student loan 

programs. The Administration’s fiscal year 2004 budget estimates that 

access to IRS income data could save $638 million in Pell Grant costs over 

2003-2004. 

CBO was not able to determine if this option would result in a budgetary 

savings.

Related GAO Products Public Assistance: PARIS Project Can Help States Reduce Improper 

Benefit Payments. GAO-01-935. Washington, D.C.: September 6, 2001.

The Challenge of Data Sharing: Results of a GAO-Sponsored Symposium 

on Benefit and Loan Programs. GAO-01-67. Washington, D.C.: October 20, 

2000.
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Benefit and Loan Programs: Improved Data Sharing Could Enhance 

Program Integrity. GAO/HEHS-00-119. Washington, D.C.: September 13, 

2000.

GAO Contact Robert E. Robertson, (202) 512-7215
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Prevent Delinquent 

Taxpayers from 

Benefiting from 

Federal Credit 

Programs

The federal government’s operations are funded primarily through tax 

revenue collected from the nation’s taxpayers. In fiscal year 2002, the 

federal government, through the Internal Revenue Service (IRS), collected 

over $2 trillion in federal tax revenue to finance government operations. 

However, while most taxpayers comply with their tax obligation, a 

significant portion of taxpayers do not. Over time, this has led to unpaid 

taxes, penalties, and interest, which totaled about $246 billion at the end of 

fiscal year 2003. Of this amount, the IRS estimates that only $20 billion, or 

about 8 percent, will be collected.

A significant number of taxpayers, both individuals and businesses, who 

owe the federal government billions of dollars in delinquent taxes receive 

significant federal benefits and other federal payments. In addition to 

Social Security Administration benefit payments, federal civilian 

retirement payments, and federal civilian salaries, payments on federal 

contracts and Small Business Administration loans are also provided to 

these delinquent taxpayers. Federal law, generally, does not prevent 

businesses or individuals from receiving federal payments or loans when 

they are delinquent in paying federal taxes.

The Office of Management and Budget’s (OMB) Circular A-129, revised, 

provides policies for the administration of federal credit programs. These 

policies specifically direct agencies to determine whether applicants are 

delinquent on any federal debt, including tax debt, and to suspend the 

processing of credit applications if applicants have outstanding tax debt 

until such time as the applicant pays the debt or enters into a payment plan. 

Unfortunately, GAO reviews of unpaid taxes conducted as part of its annual 

audits of IRS’s financial statements, and as part of other financial 

management work at the agency, indicate that these policies have not been 

effective in preventing the disbursement of federal dollars to individuals 

and businesses with delinquent taxes.

Primary agency Internal Revenue Service

Spending type Direct

Theme Redefine beneficiaries
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In order to fully realize this benefit, the Congress could enact legislation 

implementing the prohibitions contained in OMB Circular A-129, as revised, 

that relate to this matter. A key aspect of this legislation would be to 

ensure that IRS’s efforts to modernize its business systems are successful 

in enabling it to generate timely and accurate information on the taxpayer’s 

status to assist other agencies in making determinations about eligibility 

for federal benefits and payments.

CBO was not able to determine if this option would result in a budgetary 

savings.

Related GAO Products Financial Management: Some DOD Contractors Abuse the Federal Tax 

System with Little Consequence. GAO-04-95. Washington, D.C.: February 

12, 2004.

Debt Collection: Barring Delinquent Taxpayers From Receiving Federal 

Contracts and Loan Assistance. GAO/T-GGD/AIMD-00-167. Washington, 

D.C.: May 9, 2000.

Unpaid Payroll Taxes: Billions in Delinquent Taxes and Penalty 

Assessments Are Owed. GAO/AIMD/GGD-99-211. Washington, D.C.: August 

2, 1999.

Tax Administration: Billions in Self-Employment Taxes Are Owed. 

GAO/GGD-99-18. Washington, D.C.: February 19, 1999.

GAO Contacts Steven J. Sebastian, (202) 512-3406

James R. White, (202) 512-9110
Appendix III

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Increase Fee Revenue 

from Federal Reserve 

Operations

The Federal Reserve is responsible for conducting monetary policy, 

maintaining the stability of financial markets, providing services to 

financial institutions and government agencies, and supervising and 

regulating banks and bank-holding companies. The Federal Reserve is 

unique among governmental entities in its mission, structure, and finances. 

Unlike federal agencies funded through congressional appropriations, the 

Federal Reserve is a self-financing entity that deducts its expenses from its 

revenue and transfers the remaining amount to the U.S. Department of the 

Treasury. Although the Federal Reserve’s primary mission is to support a 

stable economy, rather than to maximize the amount transferred to 

Treasury, its revenues contribute to total U.S. revenues and, thus, can help 

reduce the federal deficit.

One way to enhance the Federal Reserve’s revenue would be to charge fees 

for bank examinations, thus increasing the Federal Reserve’s return to 

taxpayers. The Federal Reserve Act authorizes the Federal Reserve to 

charge fees for bank examinations, but the Federal Reserve has not done 

so, either for the state-member banks it examines or the bank-holding 

company examinations it conducts. Taxpayers in effect bear the cost of 

these examinations, which total hundreds of millions of dollars annually. 

CBO estimates that budgetary savings could be achieved if fees were 

assessed similar to those charged national banks, with a credit allowed for 

fees paid to state regulators.

Primary agency Federal Reserve Board

Spending type Direct

Theme Improve efficiency
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Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Federal Reserve System: Update on GAO’s 1996 Recommendations. GAO02-774. Washington, D.C.: September 25, 2002.

Federal Reserve System: Current and Future Challenges Require 

Systemwide Attention. GAO/T-GGD-96-159. Washington, D.C.: July 26, 

1996.

Federal Reserve System: Current and Future Challenges Require 

Systemwide Attention. GAO/GGD-96-128. Washington, D.C.: June 17, 1996.

Federal Reserve Banks: Internal Control, Accounting, and Auditing 

Issues. GAO/AIMD-96-5. Washington, D.C.: February 9, 1996.

GAO Contact Thomas J. McCool, (202) 512-8678

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Change from the CBO baseline

Added receipts 89 94 99 103 108
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Eliminate the 1-Dollar 

Note 

Replacing the 1-dollar note with the new gold-colored 1-dollar coin would 

save the government hundreds of millions of dollars annually. Substituting 

a dollar coin for a 1-dollar note could yield over $522 million of savings to 

the government per year, on average, over a 30-year period. The savings 

come about because a coin lasts longer than paper money, the Federal 

Reserve has lower processing costs with coins than paper money, and a 

coin would result in interest savings from the additional seigniorage earned 

on a coin (i.e., the difference between the face value of a coin and its 

production cost).

In the past, neither the Congress nor the executive branch has supported 

the replacement of the 1-dollar note with a coin. All western economies 

now use a coin for monetary transactions at the same value that Americans 

use the more costly paper note. These countries have demonstrated that 

public resistance to such a change can be managed and overcome. The 

United States released a new gold-colored dollar coin in 2000. While initial 

demand for the coin had been strong, for it to realize its savings potential, 

the note has to be eliminated. Most of the coins that were issued are being 

held by collectors and do not circulate. With proper congressional 

oversight, public resistance to elimination of the 1-dollar note could be 

overcome and public support for the coin improved. For example, the 

Congress could require the Treasury or the Federal Reserve to conduct a 

public awareness campaign, explaining the savings that could be achieved 

by eliminating the 1-dollar note. In addition, the Congress could require the 

Federal Reserve or the Department of the Treasury to designate a central 

spokesperson who would handle all public and press inquiries about the 

elimination of the 1-dollar note.

CBO estimates that budgetary savings could be achieved by eliminating the 

1-dollar note.

Primary agency Department of the Treasury

Account United States Mint Public Enterprise Fund 

(20-4159)

Spending type Direct/Governmental Receipts

Budget subfunction 803/Central fiscal operations

Theme Improve efficiency
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Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products New Dollar Coin: Marketing Campaign Raised Public Awareness but Not 

Widespread Use. GAO-02-896. Washington, D.C.: September 13, 2002.

A Dollar Coin Could Save Millions. GAO/T-GGD-95-203. Washington, D.C.: 

July 13, 1995.

1-Dollar Coin Reintroduction Could Save Millions if It Replaced the 1-

Dollar Note. GAO/T-GGD-95-146. Washington, D.C.: May 3, 1995.

1-Dollar Coin: Reintroduction Could Save Millions if Properly Managed. 

GAO/GGD-93-56. Washington, D.C.: March 11, 1993.

National Coinage Proposals: Limited Public Demand for New Dollar 

Coin or Elimination of Pennies. GAO/GGD-90-88. Washington, D.C.: May 

23, 1990.

GAO Contact Mark L. Goldstein, (202) 512-2834

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Change from the CBO baseline

Budget authority 22 45 67 90 112

Outlays 22 45 67 90 112
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Better Target 

Infrastructure 

Investments to Meet 

Mission and ResultsOriented Goals

The federal government plays a prominent role in identifying the nation’s 

infrastructure investment needs and spent $160.6 billion on the nation’s 

infrastructure in 2002. A sound public infrastructure plays a vital role in 

encouraging a more productive and competitive national economy and 

meeting public demands for safety, health, and improved quality of life. 

Little, however, is known about the comparability and reasonableness of 

federal agencies’ estimates for infrastructure needs. In fact, infrastructure 

“need” is difficult to define and to distinguish from “wish lists” of capital 

projects.

The Office of Management and Budget (OMB) has developed a Capital 

Programming Guide to assist agencies with developing a disciplined 

capital programming process. OMB strongly recommends, but does not 

require, agencies to follow its guidance. In addition, GAO’s Executive 

Guide: Leading Practices in Capital Decision-Making summarizes 

fundamental practices that have been successfully implemented by 

organizations that are recognized for their outstanding capital decisionmaking practices and provides examples of leading practices from which 

the federal government may draw lessons and ideas. In a review of seven 

federal agencies’ U.S. infrastructure investment practices, GAO found that 

none of them followed leading practices for capital decision-making. In 

particular, five of the agencies did not develop assessments of the 

infrastructure needed to meet outcomes. Rather, these agencies developed 

estimates that were summations of the costs of projects eligible to receive 

federal funding or projects identified by the Congress and others. Also, 

agencies were not likely to (1) develop a long-term capital plan, (2) use 

cost-benefit analysis as the primary method to compare alternative 

investments, (3) rank and select projects for funding based on established 

criteria, and (4) budget for projects in useful segments. Similarly, in a 

January 2004 review of four agencies’ use of capital planning, GAO found 

that, while some of these agencies have long-term planning documents, 

Primary agencies Multiple

Accounts Multiple

Spending type Discretionary

Budget subfunctions Multiple

Theme Improve efficiency
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none has a comprehensive plan that defines its long-term investment 

decisions.

Given the importance of federal infrastructure investment to the nation, 

developing long-term agency capital plans and following other leading 

practices are critical for sound infrastructure investment. One option for 

improving capital planning is to have the OMB require that agencies comply 

with the principles and practices of its Capital Programming Guide. 

Requiring agencies to link the benefits of investment projects to the 

achievement of mission goals and long-term strategic goals would give 

decisionmakers better information to base funding decisions on. 

Infrastructure investment requests based on other leading practices, 

especially those enumerated above, could also increase the Congress’s 

capacity to make better investment decisions. 

CBO was not able to determine if this option would yield budgetary 

savings.

Related GAO Products Budget Issues: Agency Implementation of Capital Planning Principles Is 

Mixed. GAO-04-138. Washington, D.C.: January 16, 2004.

U.S. Infrastructure: Agencies’ Approaches to Developing Investment 

Estimates Vary. GAO-01-835. Washington, D.C.: July 20, 2001.

U.S. Infrastructure: Funding Trends and Opportunities to Improve 

Investment Decisions. GAO/RCED/AIMD-00-35. Washington, D.C.: 

February 7, 2000.

Executive Guide: Leading Practices in Capital Decision-Making. 

GAO/AIMD-99-32. Washington, D.C.: December 1998.

GAO Contact Katherine Siggerud, (202) 512-6570
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Identify and Dispose of 

Unneeded Real 

Property Assets Held 

by GSA

Despite significant changes in the size and mission needs of the federal 

government in recent years, the federal portfolio of real property assets in 

many ways still largely reflects the business model and technological 

environment of the 1950s. Many of the assets are no longer aligned with, or 

responsive to, agencies’ changing missions, and are therefore no longer 

needed. Retaining unneeded assets presents significant potential risks for 

(1) lost dollars because such properties are costly to maintain; and (2) lost 

opportunities because the properties could be put to more cost-beneficial 

uses, exchanged for other needed property, or sold to generate revenue for 

the government. According to government data, as of September 2002, the 

federal government owned about 3 billion square feet of building floor 

space in the United States, and the General Services Administration (GSA) 

was the second largest nondefense holder of this space, after the U.S. 

Postal Service. GSA provides real estate services for federal agencies and 

owns approximately 1,700 facilities with about 200 million square feet of 

building floor space. GSA facilities include office buildings, courthouses, 

and border stations. 

In June 2001, GSA started an overall effort, commonly referred to as the 

portfolio restructuring initiative, where it is reviewing its real property 

inventory nationwide to identify and remove all vacant and underutilized 

assets that are not financially self-sustaining, or for which there is not a 

substantial, long-term federal purpose. The objective of this initiative is to 

better align GSA’s properties with its mission of providing quality space and 

services at a cost that is competitive with the private sector. GSA plans to 

complete implementation of the portfolio restructuring initiative by 2007 

and expects by that time to have a portfolio of strong, income-producing 

properties that is much more responsive to changing agency mission needs. 

As of October 1, 2002, GSA reported that it had 236 vacant and 

underutilized properties with about 18.4 million square feet of space. 

Primary agency General Services Administration

Account Federal Building Fund (47-4542)

Spending type Discretionary

Budget subfunction 804/General property and records 

management

Theme Improve efficiency
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As part of its oversight of this effort, Congress could consider having GSA 

provide information on the status of properties it has identified as 

candidates for disposal or transfer and identify the specific steps Congress 

could take to facilitate the disposal or transfer of these properties. 

Oftentimes, GSA is hampered by factors outside of its control. Our work 

has shown that decisions about real property often do not reflect the most 

cost-effective alternative that is in the interest of the agency or the 

government as a whole but instead reflect other priorities. In particular, 

this situation often arises when the federal government attempts to 

consolidate facilities or otherwise dispose of unneeded assets. Congress’s 

direct involvement could serve as a catalyst for action on individual 

properties. This would be particularly important in light of the cost of 

securing and maintaining these unneeded properties; the opportunity costs 

associated with not selling or exchanging these assets; and the image of 

government waste and inefficiency that these facilities present to the 

public.

CBO was not able to determine if this option would yield budgetary 

savings.

Related GAO Products Federal Real Property: Vacant and Underutilized Properties at GSA, VA, 

and USPS. GAO-03-747. Washington, D.C.: August 19, 2003.

High-Risk Series: Federal Real Property. GAO-03-122. Washington, D.C.: 

January 2003.

GAO Contact Mark L. Goldstein, (202) 512-2834
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Target Funding 

Reductions in Formula 

Grant Programs

Many federal grant programs with formula-based distribution of funds to 

state and local governments are not well targeted to jurisdictions with high 

programmatic needs but comparatively low funding capacity. As a result, 

as we pointed out in 1996 and in 1998,48 it is not uncommon that program 

recipients in areas with greater wealth and relatively lower needs may 

enjoy a higher level of services than available in harder pressed areas. 

Alternatively, these wealthier areas can provide the same level of services 

but at lower tax rates than harder pressed areas.

At a time when federal discretionary resources are increasingly 

constrained, better targeting of formula-based grant awards offers a 

strategy to bring down federal outlays by concentrating reductions in 

wealthier localities with comparatively fewer needs and greater capacity to 

absorb the cuts. At the same time, redesigned formulas could hold 

harmless the hardest pressed areas that are most vulnerable. There are a 

variety of ways in which budgetary savings could be achieved to improve 

the targeting of these programs, including the following:

• Reduce the minimum federal reimbursement rate to below 50 percent 

for Medicaid, for example. This example would focus the burden of the 

reduced federal share on those states with the highest per capita 

income. To the extent that per capita income provides a reasonable 

basis for comparing state tax bases, this example would require states 

with the strongest tax bases to shoulder the burden of a reduced federal 

share.

Primary agencies Multiple

Accounts Multiple

Spending types Discretionary/Direct

Budget subfunctions Multiple

Theme Redefine beneficiaries

48U.S. General Accounting Office, Deficit Reduction: Better Targeting Can Reduce 

Spending and Improve Programs and Services, GAO/AIMD-96-14 (Washington, D.C.: Jan. 

16, 1996), and School Finance: State Efforts to Equalize Funding Between Wealthy and 

Poor School Districts, GAO/HEHS-98-92 (Washington, D.C.: June 16, 1998).
Appendix III

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• Reduce federal reimbursement rates only for those states with 

comparatively low program needs and comparatively strong tax bases. 

Under this example, the matching formula could be revised to better 

reflect the relative number of people in need, geographic differences in 

the cost of services, and state tax bases. Under the revised formula, 

states with comparatively low need and strong tax bases would receive 

lower federal reimbursement rates while states with high needs and 

weak tax bases would continue to receive their current reimbursement 

percentage. This example would focus the burden of a reduced federal 

share in those states with the lowest need and the strongest ability to 

fund program services from state resources.

Many other formulas used to distribute federal grant funding do not 

recognize the different fiscal capacities of states to provide benefits from 

their own resources. Moreover, many of these formulas have not been 

reassessed for years or even decades. One option that would realize 

budgetary savings in nonentitlement programs such as these would be to 

revise the funding formula to reflect the strength of state tax bases. A new 

formula could be calibrated so that funding is maintained in states or local 

governments with weak tax bases in order to maintain needed program 

services but reduced in high tax base states to realize budgetary savings. 

Examples of these types of formula grant programs include the following.

• Federal Aid Highways: This program, the largest nonentitlement 

formula grant program, allocates funds among the states based on their 

historic share of funding. This approach reflects antiquated indicators 

of highway needs, such as postal road miles and the land area of the 

state.

• Community Development Block Grant: This program allocates funds 

among local governments based on housing age and condition, 

population, and poverty, and does not include a factor recognizing local 

wealth or fiscal capacity. For example, Greenwich, Conn., received five 

times more funding per person in poverty in 1995 than that provided to 

Camden, N.J., even though Greenwich, with per capita income six times 

greater than Camden, could more easily afford to fund its own 

community development needs. This disparity is due to the formula’s 

recognition of older housing stock and population and its exclusion of 

fiscal capacity indicators.

An option that illustrates the potential savings from targeting formula grant 

programs is a 10 percent reduction in the aggregate total of all close-ended 
Appendix III

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or capped formula grant programs exceeding $1 billion. The estimated 

savings achieved through this option could serve as a benchmark for 

overall savings from this approach but should not be interpreted as a 

suggestion for across-the-board cuts. Rather, as the above examples 

indicate, the Congress may wish to determine specific reductions on a 

program-by-program basis, after examining the relative priority and 

performance of each grant program.

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Formula Grants: Effects of Adjusted Population Counts on Federal 

Funding to States. GAO/HEHS-99-69. Washington, D.C.: February 26, 1999.

Medicaid Formula: Effects of Proposed Formula on Federal Shares of 

State Spending. GAO/HEHS-99-29R. Washington, D.C.: February 19, 1999.

Welfare Reform: Early Fiscal Effect of the TANF Block Grant. GAO/AIMD98-137. Washington, D.C.: August 22, 1998.

Public Housing Subsidies: Revisions to HUD’s Performance Funding 

System Could Improve Adequacy of Funding. GAO/RCED-98-174. 

Washington, D.C.: June 19, 1998.

School Finance: State Efforts to Equalize Funding Between Wealthy and 

Poor School Districts. GAO/HEHS-98-92. Washington, D.C.: June 16, 1998.

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the CBO baseline 

Mandatory savings

Budget authority 6,940 6,979 7,143 7,170 7,277

Outlays 1,316 2,556 2,674 2,765 2,745

Discretionary savings

Budget authority 3,618 5,301 5,566 5,693 5,803

Outlays 2,146 5,564 7,209 7,927 8,437
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

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School Finance: State and Federal Efforts to Target Poor Students. 

GAO/HEHS-98-36. Washington, D.C.: January 28, 1998.

School Finance: State Efforts to Reduce Funding Gaps Between Poor and 

Wealthy Districts. GAO/HEHS-97-31. Washington, D.C.: February 5, 1997.

Federal Grants: Design Improvements Could Help Federal Resources Go 

Further. GAO/AIMD-97-7. Washington, D.C.: December 18, 1996.

Public Health: A Health Status Indicator for Targeting Federal Aid to 

States. GAO/HEHS-97-13. Washington, D.C.: November 13, 1996.

School Finance: Options for Improving Measures of Effort and Equity in 

Title I. GAO/HEHS-96-142. Washington, D.C.: August 30, 1996.

Highway Funding: Alternatives for Distributing Federal Funds. 

GAO/RCED-96-6. Washington, D.C.: November 28, 1995.

Ryan White Care Act of 1990: Opportunities to Enhance Funding Equity. 

GAO/HEHS-96-26. Washington, D.C.: November 13, 1995.

Department of Labor: Senior Community Service Employment Program 

Delivery Could Be Improved Through Legislative and Administrative 

Action. GAO/HEHS-96-4. Washington, D.C.: November 2, 1995.

GAO Contact Paul L. Posner, (202) 512-9573
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 263 GAO-04-649 Opportunities for Oversight

Adjust Federal Grant 

Matching 

Requirements

Intergovernmental grants are a significant part of both federal and state 

budgets. From the first annual cash grant under the Hatch Act of 1887, the 

number of grant programs rose to approximately 660 in 2001 with outlays 

of $317 billion, about 17 percent of total federal spending. Grants serve 

many purposes beyond returning resources to taxpayers in the form of 

state services. For example, grants can serve as a tool to supplement state 

spending for nationally important activities. However, if states use federal 

grant dollars to reduce (i.e., substitute for) their own spending for the aided 

program either initially or over time, the fiscal impact of federal grant 

dollars is reduced.

Public finance experts suggest that grants are unlikely to supplement 

completely a state’s own spending, and thus some substitution is to be 

expected in any grant. Our review of economists’ estimates of substitution 

suggests that every additional federal grant dollar results in less than a 

dollar of total additional spending on the aided activity. The estimates of 

substitution showed that about 60 cents of every federal grant dollar 

substitutes for state funds that states otherwise would have spent.

Our 1996 analysis linked substitution to the way in which most grants are 

designed. For example, many of the 87 largest grant programs did not 

include features, such as state matching and maintenance-of-effort 

requirements, that can encourage states to use federal funds as a 

supplement rather than a replacement for their own spending. While not 

every grant is intended to supplement state spending, proponents of grant 

redesign argue that if some grants incorporated more rigorous 

maintenance-of-effort requirements and lower federal matching rates, then 

fewer federal funds could still encourage states to contribute to 

approximately the same level of overall spending on nationally important 

programs. Critics of this approach argue that such redesign would put a 

Primary agencies Multiple

Accounts Multiple

Spending types Discretionary/Direct

Budget subfunctions Multiple

Theme Redefine beneficiaries
Appendix III

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higher burden on states because they would have to finance a greater share 

of federally aided programs.

The savings that could be achieved from redesigning grants to increase 

their fiscal impact would depend on the nature of the design changes and 

state responses to those changes. For example, faced with more rigorous 

financing requirements, states might reduce or eliminate their own 

financial support for the aided activity. The outcome will be influenced by 

the trade-off decisions that the Congress makes to balance the importance 

of achieving each program’s goals and objectives against the goal of 

encouraging greater state spending and lowering the federal deficit.

We were unable to precisely measure the budgetary impact of inflationadjusted maintenance-of-effort requirements because current state 

spending levels are not reported consistently. However, it was possible to 

estimate the impact of changes in the matching rates on many close-ended 

federal grants. For example, many such grants do not require any state or 

local matching funds. The federal share of these programs could be 

reduced modestly, for example from 100 percent to 90 percent, a reduction 

unlikely to discourage states from participating in the program. 

CBO estimates the following budgetary savings with this option.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Disadvantaged Students: Fiscal Oversight of Title I Could Be Improved. 

GAO-03-377. Washington, D.C.: February 28, 2003.

Welfare Reform: Challenges in Maintaining a Federal-State Fiscal 

Partnership. GAO-01-828. Washington, D.C.: August 10, 2001.

Welfare Reform: Early Fiscal Effects of the TANF Block Grant. 

GAO/AIMD-98-137. Washington, D.C.: August 22, 1998.

Dollars in millions

FY05 FY06 FY07 FY08 FY09

Savings from the CBO baseline

Budget authority 2,973 3,736 3,801 3,872 3,947

Outlays 1,093 2,924 3,470 3,683 3,827
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

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Federal Grants: Design Improvements Could Help Federal Resources Go 

Further. GAO/AIMD-97-7. Washington, D.C.: December 18, 1996.

Block Grants: Issues in Designing Accountability Provisions. 

GAO/AIMD-95-226. Washington, D.C.: September 1, 1995.

GAO Contact Paul L. Posner, (202) 512-9573
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 266 GAO-04-649 Opportunities for Oversight

Consolidate Grants for 

First Responders to 

Improve Efficiency 

GAO’s work over the years has repeatedly shown that mission 

fragmentation and program overlap are widespread in the federal 

government and that crosscutting program efforts are not well 

coordinated. As far back as 1975, GAO reported that many of the 

fundamental problems in managing federal grants were the direct result of 

the proliferation of federal assistance programs and the fragmentation of 

responsibility among different federal departments and agencies. While we 

noted that the large number and variety of programs tended to ensure that 

a program is available to meet a defined need, we found that substantial 

problems occur when state and local governments attempt to identify, 

obtain, and use the fragmented grants-in-aid system to meet their needs. 

In a specific example of this fragmentation, in September 2003 GAO 

identified at least 21 different grant programs that can be used by the 

nation’s first responders to address homeland security needs. Multiple 

fragmented grant programs can create a confusing and administratively 

burdensome process for state and local officials seeking to use federal 

resources for pressing homeland security needs. 

It now falls to the Congress to redesign the nation’s homeland security 

grant programs in light of the events of September 11, 2001. In so doing, 

the Congress must balance the needs of our state and local partners in their 

call for both additional resources and more flexibility for meeting the 

nation’s goals of attaining the highest levels of preparedness. In addressing 

the fragmentation prompted by the current homeland security grant 

system, Congress’ alternatives might include consolidating existing grants, 

using performance partnerships, and simplifying and streamlining 

administrative and planning requirements. These approaches could 

provide state and local governments with increased flexibility while 

potentially improving intergovernmental efficiency and homeland security 

program outcomes. An example of how consolidation of first responder 

Primary agency Department of Homeland Security

Accounts Multiple

Spending type Discretionary

Budget subfunctions Multiple

Theme Improve efficiency
Appendix III

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grants might be achieved would be to merge the existing Emergency 

Management Performance Grant, the State Homeland Security Grant 

Program, and the Urban Area Security Initiative into one new grant 

program. If such a consolidation can be assumed to yield administrative 

efficiencies, then the Congress might reduce the amount of the combined 

grant by, for example, 10 percent. Alternatively, if the Congress did not 

want to reduce the overall amount of the consolidated grant, efficiencies 

achieved through consolidation could possibly result in an improved level 

of program performance given the current level of funding. 

CBO was not able to determine if this option would yield budgetary 

savings.

Related GAO Products Homeland Security: Reforming Federal Grants to Better Meet 

Outstanding Needs. GAO-03-1146T. Washington, D.C.: September 3, 2003.

Federal Assistance: Grant System Continues to Be Highly Fragmented. 

GAO-03-718T. Washington, D.C.: April 29, 2003.

Multiple Employment and Training Programs: Funding and 

Performance Measures for Major Programs. GAO-03-589. Washington, 

D.C.: April 18, 2003.

Workforce Investment Act: States and Localities Increasingly Coordinate 

Services for TANF Clients, but Better Information Needed on Effective 

Approaches. GAO-02-696. Washington, D.C.: July 3, 2002.

Managing for Results: Continuing Challenges to Effective GPRA 

Implementation. GAO/T-GGD-00-178. Washington, D.C.: July 20, 2000.

Fundamental Changes are Needed in Federal Assistance to State and 

Local Governments. GAO/GGD-75-75. Washington, D.C.: August 19, 1975.

GAO Contact Paul L. Posner, (202) 512-9573
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 268 GAO-04-649 Opportunities for Oversight

Improve IRS’s Ability 

to Collect Delinquent 

Taxes

From fiscal years 1996 through 2001, the Internal Revenue Service’s (IRS) 

compliance and enforcement programs experienced almost universal 

declines in workload coverage, cases closed, direct staff time used, 

productivity, and dollars of unpaid taxes collected. While IRS has other 

efforts to help taxpayers comply with tax laws, such as ensuring the clarity 

of tax forms and instructions, IRS’s enforcement programs are viewed by 

many as critical for maintaining the public’s confidence in our tax system. 

The Congress and others have expressed concern about the compliance 

and collections trends for their potential to undermine taxpayers’ 

motivation to fulfill their tax obligations. IRS’s inventory of delinquent 

accounts continues to grow and age as the gap in workload and capacity to 

complete work increases. For example, in 2002, IRS was deferring 

collection action on tax debts at a rate equal to one out of three new 

collection cases. One way to reverse the declines in IRS’s compliance and 

enforcement programs would be to: devote more resources to them. This 

would enable IRS to close more delinquent tax cases and collect more 

unpaid tax revenues. 

Congress has two basic alternatives if it wishes to devote more resources 

to IRS’s enforcement programs. One, increase IRS’s budget with additional 

funds targeted to compliance and collection staff and two, reallocate 

resources from other IRS programs. In recent years, IRS has proposed 

increasing enforcement staff funded partly out of budget increases and 

partly by reallocating resources from other areas within IRS. Despite 

budget requests that were almost fully funded and despite realizing some 

savings, the number of skilled enforcement staff actually declined between 

1998 and 2003 because of other priorities including unbudgeted expenses.

JCT was not able to estimate a revenue effect for this option because the 

JCT does not estimate discretionary re-allocations of IRS resources. 

Primary agency Internal Revenue Service

Account Tax law enforcement (20-0913)

Spending type Discretionary

Budget subfunction Multiple

Theme Reassess objectives
Appendix III

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Nevertheless, we believe that should IRS succeed at increasing its ability to 

collect delinquent taxes, it would bring in additional revenues.

Related GAO Products Tax Administration: IRS Should Continue to Expand Reporting on Its 

Enforcement Efforts. GAO-03-378. Washington, D.C.: January 31, 2003.

Tax Administration: Impact of Compliance and Collection Program 

Declines on Taxpayers. GAO-02-674. Washington, D.C.: May 22, 2002.

GAO Contact James R. White, (202) 512-9110
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 270 GAO-04-649 Opportunities for Oversight

Receipts Enhance Nontax Debt Collection Using Available Tools

Increase Highway User Fees on Heavy Trucks

Implement Tolling or Other Alternative Revenue Sources for the Fuel Tax 

on Highways

Restrict the Preferential Federal Income Tax Treatment of Business-Owned 

Life Insurance

Reassess Annual Charges for FERC-licensed Hydropower Projects that Use 

Federal Lands

Tax Interest Earned on Life Insurance Policies and Deferred Annuities

Further Limit the Deductibility of Home Equity Loan Interest

Limit the Individual Tax Exclusions for Employer-Paid Health Insurance

Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on 

Motor Fuels

Index Excise Tax Rates for Inflation

Require Corporate Tax Document Matching

Improve Administration of the Tax Deduction for Real Estate Taxes

Increase Filing of Returns by U.S. Citizens Living Abroad

Increase the Use of Seizure Authority to Collect Delinquent Taxes

Increase Collection of Self-employment Taxes

Increase the Use of Electronic Funds Transfer for Installment Tax 

Payments

Reduce Gasoline Excise Tax Evasion

Improve Independent Contractor Tax Compliance

Expand the Use of IRS’s TIN-Matching Program

Improve Administration of the Federal Payment Levy Program

Increase Penalties and Consistency of Disclosure for Abusive Tax Shelters

Authorize IRS to Use Private Collection Agencies to Collect Certain 

Delinquent Taxes
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 271 GAO-04-649 Opportunities for Oversight

Enhance Nontax Debt 

Collection Using 

Available Tools

Nontax federal debt delinquent more than 180 days continues to be a 

significant problem governmentwide. The Department of Treasury 

reported that such debt totaled over $60 billion annually in recent years. As 

delinquent debts age, they become increasingly difficult to collect. In 1996, 

the Congress enacted the Debt Collection Improvement Act of 1996 (DCIA) 

to provide for more aggressive pursuit of delinquent debt. Treasury’s 

Financial Management Service (FMS) has been instrumental in helping 

agencies identify and refer more seriously delinquent nontax debts to FMS 

for additional effort. FMS has had some success in these centralized 

efforts; however, two key aspects of the 1996 legislation have lagged behind 

other initiatives.

In particular, the law authorized federal agencies to perform administrative 

wage garnishment (AWG) for certain delinquent debt. Debt collection 

experts have emphasized that AWG is a powerful instrument for collecting 

debt since the mere threat of using it is often enough to motivate voluntary 

payment. Properly used in tandem with other debt recovery techniques 

such as Treasury’s centralized debt collection program, AWG should 

generate collections and provide leverage for agencies to obtain voluntary 

payments from delinquent debtors. However, few agencies are using AWG. 

Although the Department of Education had implemented AWG granted 

under separate authority, none of the nine large Chief Financial Officers 

Act agencies we reviewed in fiscal year 2001 had fully implemented AWG as 

authorized by the DCIA. According to a Treasury official, as of October 

2003 only two of the nine large agencies, the Departments of Housing and 

Urban Development and Education (for administrative debts), had 

authorized Treasury to perform AWG as part of its centralized debt 

collection efforts. Although AWG is not mandatory, by failing to employ 

this tool—more than 7 years after the DCIA’s enactment—agencies have 

missed collection opportunities. 

DCIA also called for steps to prevent certain delinquent debtors from 

receiving additional federal financial assistance in the form of loans, loan 

Primary agency Department of the Treasury

Spending types Direct/Discretionary

Theme Improve efficiency
Appendix III

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guarantees, and loan insurance. Our March 2002 report discussed three 

major information sources that contain data on delinquent federal debtors: 

credit bureau reports, the Department of Housing and Urban 

Development’s Credit Alert Interactive Voice Response System, and the 

Department of the Treasury’s offset program (TOP) database. Each 

information source contained certain information on delinquent federal 

nontax debtors, but none provided all-inclusive, timely data or maintained 

data long enough to be an adequate basis for successfully barring future 

financial assistance to current or prior delinquent debtors. According to a 

Treasury official, FMS has implemented a new Internet-based program to 

assist agencies in identifying delinquent debtors. As of June 17, 2003, SBA 

is using this system to initiate searches of limited information from the TOP 

database to determine whether SBA applicants owe delinquent nontax 

debt. FMS is planning for additional agencies to participate in the future.

We have recommended that agencies begin implementing AWG and that 

FMS enhance or supplement information in the TOP database to assist 

agencies in identifying delinquent debtors to prevent them from obtaining 

access to future federal financial assistance in the form of loans, loan 

guarantees, and loan insurance. Because it is not clear at this time how 

much federal agency debt is eligible for AWG, an estimate of additional 

receipts from full implementation of this debt collection tool would only be 

a preliminary indication. The same uncertainty exists for estimated 

benefits related to full implementation of the delinquent debtor bar 

provision. Given the pace of implementation, it may be desirable for the 

Congress to establish certain milestones and performance expectations for 

the debt collection function.

JCT agrees that the option has the potential for increased revenue, but it 

cannot be estimated without additional specification.

Related GAO Products Debt Collection: Agriculture Making Progress in Addressing Key 

Challenges. GAO-03-202T. Washington, D.C.: November 13, 2002.

Debt Collection Improvement Act of 1996: Major Data Sources Inadequate 

for Implementing the Debtor Bar Provision. GAO-02-462. Washington, 

D.C.: March 29, 2002.

Debt Collection Improvement Act of 1996: Status of Selected Agencies’ 

Implementation of Administrative Wage Garnishment. GAO-02-313. 

Washington, D.C.: February 28, 2002.
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 273 GAO-04-649 Opportunities for Oversight

Debt Collection Improvement Act of 1996: Department of Agriculture 

Faces Challenges Implementing Certain Key Provisions. GAO-02-277T. 

Washington, D.C.: December 5, 2001.

Debt Collection Improvement Act of 1996: Agencies Face Challenges 

Implementing Certain Key Provisions. GAO-02-61T. Washington, D.C.: 

October 10, 2001.

GAO Contact Gary T. Engel, (202) 512-8815
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 274 GAO-04-649 Opportunities for Oversight

Increase Highway User 

Fees on Heavy Trucks

To develop and maintain highways, the federal government collects user 

fees including fuel taxes, a heavy vehicle use tax, an excise tax on truck 

and tractor sales, and an excise tax on heavy tires. In fiscal year 2002, 

about $33.9 billion was collected from general federal highway user taxes. 

For many years, questions have been raised concerning whether highway 

users, including owners of heavy trucks, pay taxes in proportion to the 

wear and tear that their vehicles impose on highway pavement.

In 1982, the Congress passed the first major increase in federal highway use 

taxes since 1956 in order to increase highway revenues and to respond to a 

Federal Highway Administration (FHWA) report that heavy trucks 

underpaid by about 50 percent their fair share relative to the pavement 

damage that they caused. FHWA also reported that lighter trucks were 

overpaying by between 30 and 70 percent (depending on weight), and 

automobiles were overpaying by 10 percent. The 1982 tax increase 

required that the ceiling for the heavy vehicle use tax be increased from 

$240 a year to $1,900 a year by 1989. In response to the concerns of the 

trucking industry about the new tax structure, the Congress again revised 

the system in the Deficit Reduction Act of 1984. Under the act, the ceiling 

for the heavy vehicle use tax was lowered from $1,900 to $550 a year. To 

ensure that this action was revenue neutral, the Congress raised the tax on 

diesel fuel from 9 cents to 15 cents per gallon.

As GAO recommended in June 1994, FHWA conducted a cost allocation 

study. The study, released in August 1997, noted that the overall equity of 

highway user fees could be incrementally improved by implementing either 

a weight-distance tax or eliminating the existing $550 cap on the Heavy 

Vehicle Use Tax. However, the study made no recommendations; the 

administration continues to monitor highway user fees but plans no action 

unless the overall equity of highway user fees worsens. 

JCT made the following revenue estimates, effective the taxable years 

beginning after December 31, 2004.

Primary agency Department of Transportation

Spending type Direct

Theme Redefine beneficiaries
Appendix III

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Five-Year Revenues

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

Related GAO Products Freight Transportation: Strategies Needed to Address Planning and 

Financing Limitations. GAO-04-165. Washington, D.C.: December 19, 

2003.

Highway Financing: Factors Affecting Highway Trust Fund Revenues. 

GAO-02-667T. Washington, D.C.: May 9, 2002.

Highway User Fees: Updated Data Needed To Determine Whether All 

Users Pay Their Fair Share. GAO/RCED-94-181. Washington, D.C.: June 7, 

1994.

GAO Contact Katherine Siggerud, (202) 512-6570

Dollars in billions

FY05 FY06 FY07 FY08 FY09

Revenue gain 0.1 0.1 0.1 0.1 0.1
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 276 GAO-04-649 Opportunities for Oversight

Implement Tolling or 

Other Alternative 

Revenue Sources for 

the Fuel Tax on 

Highways

The Transportation Equity Act for the 21st Century (TEA-21) expired on 

September 30, 2003, and while the Congress has passed a short extension, 

it is considering a new reauthorization bill this session. The House has 

passed a $275 billion bill over six years, and the Senate has passed a $318 

billion bill. To provide the necessary revenues needed, proposals such as 

spending down the balance in the Highway Trust Fund and transferring 

some gasohol tax revenues (currently deposited in the General Fund) into 

the Highway Trust Fund have been discussed.

Other sources of funding are available to supplement the current gas tax 

structure. Tolling has perhaps the most widespread support and appeal as 

an additional revenue source, and this method is more closely aligned with 

the “user pays” principle supported by GAO and most transportation 

experts. It is recognized, for example, that motor fuel taxes have the 

attribute of being a pay-as-you-go form of user charge. However, the 

amount of excise tax a user pays is only weakly related to the costs 

generated. Heavier trucks, for example, pay a smaller share of the 

expenditures highway agencies incur to serve them. Therefore, it may 

appear that these trucks are a less expensive means for shippers to 

transport their goods than railroads or other modes, resulting in a 

distortion of the competitive environment. From the standpoint of 

efficiency, motor fuel taxes are not entirely sufficient because it is not 

possible for government agencies to provide incentives to vehicle 

operators to change the nature of their road use. Improved pricing of 

transportation facilities could yield large payoffs in efficiency and promote 

competition. The more widespread use of tolling to raise revenues could 

provide this system benefit.

Congress may wish to consider several other revenue sources, including 

tolling and a weight-distance tax (where vehicles are charged based on the 

distance driven and the weight of the vehicle). Tolling of our nation’s most 

congested highways could provide needed revenue as well as change 

driving patterns to reduce congestion. Based on estimates developed in a 

Primary agency Department of Transportation

Spending type Direct

Theme Reassess objectives
Appendix III

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Page 277 GAO-04-649 Opportunities for Oversight

recent Federal Highway Administration (FHWA) study, we estimate that 

net revenues derived from peak-period tolling at the nation’s 26 most 

congested urban areas would amount to $1.9 billion annually. However, 

one challenge in implementing congestion pricing is that, at present, 

greater use of pricing is limited by statutory restrictions. Another 

challenge involves effectively addressing concerns raised about equity and 

fairness. One equity concern that has frequently been raised about 

congestion pricing of public roads has been the potential effects of 

surcharges or tolls on lower-income drivers. Because a surcharge would 

represent a higher portion of the earnings of lower-income households, it 

imposes a greater financial burden on them and, therefore, is considered 

unfair. Other revenue approaches, such as a weight-distance tax, would 

also provide a more equitable tax form that would tie more closely to the 

“user pays” principle.

JCT agrees that the option has the potential for increased revenue, but it 

cannot be estimated without additional specification.

Related GAO Products Freight Transportation: Strategies Needed to Address Planning and 

Financing Limitations. GAO-04-165. Washington, D.C.: December 19, 

2003. 

Highway Financing: Factors Affecting Highway Trust Fund Revenues. 

GAO-02-667T. Washington, D.C.: May 9, 2002.

Highway User Fees: Updated Data Needed To Determine Whether All 

Users Pay Their Fair Share. GAO/RCED-94-181. Washington, D.C.: June 7, 

1994.

GAO Contacts JayEtta Z. Hecker, (202) 512-8984

Kate Siggerud, (202) 512-6570
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 278 GAO-04-649 Opportunities for Oversight

Restrict the 

Preferential Federal 

Income Tax Treatment 

of Business-Owned 

Life Insurance

Business-owned life insurance—permanent life insurance on employees 

where the business is both the owner and the beneficiary—receives 

preferential federal income tax treatment because the policies’ 

accumulated earnings are tax-deferred and death benefit payments are taxfree. Businesses purchase such policies for various reasons, such as to 

insure against financial losses associated with the deaths of key employees 

and to fund employee benefits. Questions have been raised about whether 

these policies should continue to receive preferential tax treatment, 

particularly when they cover other than key employees, and legislative 

proposals have sought to limit the preferences. Federal revenue estimators 

have estimated forgone tax revenues from the tax preferential treatment on 

policies’ accumulated earnings for the 5-year period 2004-2008 as $7.3 

billion to $9.5 billion, not including the forgone tax revenues on additional 

income from death benefit payments. 

Disagreement exists over the appropriateness of preferential tax treatment 

on business-owned life insurance policies when businesses use policy 

proceeds to meet their general business needs, including the payment of 

employee benefits. Some assert that the purchase of business-owned life 

insurance is often related to employee benefit liabilities and that the tax 

preferential treatment is needed to help reduce these costs. Others state 

that allowing preferential tax treatment of business-owned life insurance 

undermines the laws Congress enacted that define the type and scope of 

preferential tax treatment businesses should receive for providing 

employee benefits. Also, the preferential tax treatment of business-owned 

life insurance provides this investment vehicle an advantage over other 

investments that lack such preferences.

IRS and others have expressed concern that businesses may be borrowing 

to indirectly finance life insurance purchases, even though 1986, 1996, and 

1997 laws sought to restrict such borrowing. However, firms increase their 

liabilities for many purposes, making it difficult to make a direct 

connection between borrowing and purchasing life insurance. The Health 

Primary agency Treasury

Spending type Direct

Theme Reassess objectives
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 279 GAO-04-649 Opportunities for Oversight

Insurance Portability and Accountability Act of 1996 provided that no 

deduction is allowed for interest paid or accrued on any debt with respect 

to a life insurance contract, with an exception which allowed deduction for 

interest paid to insure key persons. The Taxpayer Relief Act of 1997 

provided that no deduction is allowed for that portion of a business’s total 

deductions for interest expense equal to the portion of its total assets 

invested in permanent life insurance, with an exception for life insurance 

on 20-percent owners, officers, directors, and employees. An amendment 

was offered during the House Budget Committee’s mark up of the Fiscal 

Year 2004 Concurrent Budget Resolution in March 2003, as well as in prior 

Clinton administration budget proposals, to change the exception to only 

apply to key persons, but the change was not adopted. The Congressional 

Budget Office included a similar proposal in its March 2003 budget options. 

Several other congressional proposals have attempted to limit the tax 

preferential treatment of business-owned life insurance. In May 2003, a bill 

was introduced in the House of Representatives and an amendment was 

offered in the Senate to repeal the preferential tax treatment of the 

proceeds related to certain business-owned life insurance policies. In 

addition, an amendment passed the Senate Finance Committee in 

September 2003 that would have required businesses to treat life insurance 

policy payments received as gross income, if the insured had not been an 

employee in the year preceding his or her death. These various proposals 

generally made an exception for insuring against the death of a key 

employee and may have included other exceptions, such as when the life 

insurance was held by a qualified retirement plan. Also, these various 

proposals would have generally grandfathered existing policies, allowing 

businesses to continue receiving tax-preferenced proceeds from existing 

policies. None of the proposals was enacted by the end of the first session 

of the 108th Congress.

To the extent that only new purchases of business-owned life insurance are 

taxed, revenues from changes in the tax treatment of the policies will be 

more limited because, without preferential tax treatment, purchases of the 

policies will likely decline. Because it is unclear what alternative 

investments businesses will make, the tax implications of their actions 

cannot be determined. Nonetheless, without further restrictions on the 

tax-preferred treatment of business-owned life insurance, the federal 

government will continue to forego tax revenue attributable to deferred 

policy earnings and tax-free death benefit payments.
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In light of the potential for collecting tax revenues on business-owned life 

insurance and reducing the amount of foregone federal tax revenue 

attributable to business-owned life insurance, Congress may wish to 

consider further restrictions on the tax-preferred treatment of these 

policies.

JCT made the following revenue estimates, effective the taxable years after 

December 31, 2004.

Five-Year Revenues

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

Related GAO Product Business-Owned Life Insurance: Preliminary Observations on Uses, 

Prevalence, and Regulatory Oversight. GAO-04-191T. Washington, D.C.: 

October 23, 2003.

GAO Contact Davi M. D’Agostino, (202) 512-8678

Dollars in billions

FY05 FY06 FY07 FY08 FY09

Revenue gain 0.2 0.5 0.6 0.6 0.7
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 281 GAO-04-649 Opportunities for Oversight

Reassess Annual 

Charges for FERClicensed Hydropower 

Projects that Use 

Federal Lands

The Federal Power Act directs the Federal Energy Regulatory Commission 

(FERC) to establish and collect reasonable annual charges from 

hydropower projects that use federal lands. Since 1987, FERC’s annual 

charges for the use of federal lands have been based on a linear rights-ofway fee schedule that was originally used to determine the annual fees 

other agencies charged for the rights to locate, among other things, 

powerlines, pipelines and communications lines on federal lands—uses 

that are generally less valuable than hydropower. FERC chose this system 

because it was simple and predictable and would not subject the 

commission to appeals from the electricity industry. However, this system 

has no relationship to the economic benefit of the federal lands used to 

produce hydropower. 

The annual charges FERC currently collects for the use of federal lands are 

significantly less than the fair market value of these lands, according to our 

analysis of a stratified random sample of 24 hydropower projects that use 

federal lands. On the basis of this analysis, FERC is receiving less than 2 

percent of the fair market value for the use of these lands. In total, the 

estimated fair market value of the land used by our sample of projects is at 

least $157 million annually and, under some market conditions, the value of 

these lands is worth hundreds of millions more. In comparison, FERC 

collected about $2.7 million in annual charges from the 24 sample projects 

in 2002.

One option would be for Congress to direct FERC to develop new 

strategies for assessing annual charges for the use of federal lands that are 

proportionate with the benefits conveyed to hydropower project owners. 

If FERC decides to collect annual charges that more closely reflect the fair 

market value of federal lands, it would need to take into account the 

Federal Power Act’s requirement to seek to avoid unreasonable rate 

increases to consumers, and the act’s goal of encouraging the development 

of hydropower.

Primary agency Federal Energy Regulatory Commission 

(FERC)

Spending type Discretionary

Theme Reassess objectives
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CBO agrees that this option would result in budgetary savings, but it could 

not develop a savings estimate.

Related GAO Product Federal Energy Regulatory Commission: Charges for Hydropower 

Projects’ Use of Federal Lands Need to Be Reassessed. GAO-03-383. 

Washington, D.C.: May 20, 2003.

GAO Contact Barry T. Hill, (202) 512-3841
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 283 GAO-04-649 Opportunities for Oversight

Tax Interest Earned on 

Life Insurance Policies 

and Deferred Annuities

Interest earned on life insurance policies and deferred annuities, known as 

“inside buildup,” is not taxed as long as it accumulates within the contract. 

Although the deferred taxation of inside buildup is similar to the tax 

treatment of income from some other investments, such as capital gains, it 

differs from the policy of taxing interest as it accrues on certain other 

investments, such as certificates of deposit and original issue discount 

bonds.

Not taxing inside buildup may have merit if it increases the amount of 

insurance coverage purchased and the amount of income available to 

retirees and beneficiaries. However, the tax preference given life insurance 

and annuities mainly benefits middle- and upper-income people. Coverage 

for low-income people is largely provided through the Social Security 

system, which provides both insurance and annuity protection. The 

Congress may wish to consider taxing the interest earned on life insurance 

policies and deferred annuities. Investment income from annuities 

purchased as part of a qualified individual retirement account would be 

tax-deferred until benefits were paid.

JCT estimated the following revenues, effective the taxable years after 

December 31, 2004.

Five-Year Revenues

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

Primary agency Internal Revenue Service 

Spending type Direct

Theme Reassess objectives

Dollars in billions

FY05 FY06 FY07 FY08 FY09

Revenue gain 11.5 23.4 24.0 24.6 25.2
Appendix III

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Related GAO Product Tax Policy: Tax Treatment of Life Insurance and Annuity Accrued 

Interest. GAO/GGD-90-31. Washington, D.C.: January 29, 1990.

GAO Contact James R. White, (202) 512-9110
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 285 GAO-04-649 Opportunities for Oversight

Further Limit the 

Deductibility of Home 

Equity Loan Interest

The term home equity borrowing or financing is usually applied to 

mortgages other than the original loan used to acquire a home or to any 

subsequent refinancing of that loan. Interest is deductible on up to 

$100,000 of home equity indebtedness and $1 million of indebtedness used 

to acquire a home. Home equity financing is not limited to home-related 

uses and can be used to finance additional consumption by borrowers.

Use of mortgage-related debt to finance nonhousing assets and 

consumption purchases through home equity loans could expose 

borrowers to increased risk of losing their homes should they default. 

Equity concerns may exist because middle- and upper-income taxpayers 

who itemize primarily take advantage of this tax preference, and such an 

option is not available to people who rent their housing.

One way to address the issues concerning the amounts or uses of home 

equity financing would be to limit mortgage interest deductibility up to 

$300,000 of indebtedness for the taxpayer’s principal and second residence. 

JCT made the following revenue estimates, effective the date of enactment.

Five-Year Revenues

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

Related GAO Product Tax Policy: Many Factors Contributed to the Growth in Home Equity 

Financing in the 1980s. GAO/GGD-93-63. Washington, D.C.: March 25, 

1993.

Primary agency Department of the Treasury

Spending type Direct

Theme Reassess objectives

Dollars in billions

FY05 FY06 FY07 FY08 FY09

Revenue gain 3.5 3.6 3.8 4.0 4.3
Appendix III

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GAO Contact James R. White, (202) 512-9110
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

Page 287 GAO-04-649 Opportunities for Oversight

Limit the Individual 

Tax Exclusions for 

Employer-Paid Health 

Insurance

The current tax treatment of health insurance gives few incentives to 

workers to economize on purchasing health insurance. Employer 

contributions for employee health protection are considered deductible, 

ordinary business expenses and employer contributions are not included in 

an employee’s taxable income. The same is true for a portion of the 

premiums paid by self-employed individuals. Although some employers or 

employees could drop employer-sponsored coverage without the tax 

exemption, some analysts believe that the tax-preferred status of these 

benefits has contributed to the overuse of health care services and large 

increases in our nation’s health care costs. In addition, the primary tax 

benefits accrue to those in high tax brackets who also have above average 

incomes.

Placing a cap on the amount of health insurance premiums that could be 

excluded—including in a worker’s income the amount over the cap—could 

improve incentives and, to a lesser extent, tax equity. Alternatively, 

including health insurance premiums in income but allowing a tax credit 

for some percentage of the premium would improve equity since tax 

savings per dollar of premium would be the same for all taxpayers. 

Incentives could be improved for purchasing low-cost insurance if the 

amounts given credits were capped.

One specific option the Congress may wish to consider would be to tax all 

employer-paid health insurance, while providing individuals a refundable 

tax credit of 20 percent of premiums that they or their employers would 

pay, with eligible premiums capped at $500 and $200 per month for family 

coverage and individuals, respectively. 

JCT agrees that the option has the potential for increased revenue, but an 

estimate is not available.

Related GAO Product Tax Policy: Effects of Changing Tax Treatment of Fringe Benefits. 

GAO/GGD-92-43. Washington, D.C.: April 7, 1992.

Primary agency Internal Revenue Service

Spending type Direct

Theme Redefine beneficiaries
Appendix III

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GAO Contact James R. White, (202) 512-9110
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

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Repeal the Partial 

Exemption for Alcohol 

Fuels from Excise 

Taxes on Motor Fuels

The tax code partially exempts biomass-derived alcohol fuels—made from 

nonfossil material of biological origin—from excise taxes on motor fuels. 

The tax code also provides that income tax credits for alcohol fuel use may 

be claimed instead of the excise tax exemption. However, the credit is in 

almost all cases less valuable than the exemption and is rarely used.

Tax incentives that encourage alternatives to fossil fuels might have merit if 

energy security or environmental benefits were realized. However, as we 

reported in 1997, if alcohol fuel use was not subsidized it is unlikely that 

U.S. energy security or air quality would be significantly affected. Even 

with tax subsidies, alcohol fuels were not competitive in price with fossil 

fuels in most markets. In 1995, alcohol fuels accounted for less than 1 

percent of total U.S. energy consumption for transportation. Our report 

concluded that the incentives have not created enough usage to affect the 

likelihood of an oil price shock. Nor could their use be expanded enough 

to counter such a shock given existing production technologies. (As of 

2002, alcohol fuels still accounted for less than 1 percent of U.S. energy 

consumption for transportation.) Use of oxygenated fuels such as ethanolgasoline mixtures in motor vehicles generally produces less carbon 

monoxide pollution than does straight gasoline. However, the Clean Air 

Act Amendments of 1990 reduced the need for an ethanol subsidy by 

mandating the minimum oxygen content of gasoline in areas with poor air 

quality. The global warming effects of using ethanol are likely to be no 

better than, and could be worse than, those of gasoline.

The Congress may wish to consider repealing the partial excise tax 

exemption and the alcohol fuels tax credit. The repeal could result in 

higher federal outlays for price support loan programs, but any increase in 

outlays probably would be much smaller than the estimated revenue 

increase. The excise tax exemption is currently scheduled to expire on 

October 1, 2007; the equivalent blender’s tax credit is scheduled to expire 

on January 1, 2008. 

Primary agency Internal Revenue Service

Spending type Direct

Theme Redefine beneficiaries
Appendix III

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JCT estimated the following revenues, effective January 1, 2005.

Five-Year Revenues

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

Related GAO Product Tax Policy: Effects of the Alcohol Fuels Tax Incentives. GAO/GGD-97-41. 

Washington, D.C.: March 6, 1997.

GAO Contact James R. White, (202) 512-9110

Dollars in billions

FY05 FY06 FY07 FY08 FY09

Revenue gain 1.0 1.4 1.4 1.5 1.5
Appendix III

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Index Excise Tax Rates 

for Inflation

Federal excise taxes are sometimes set at a fixed dollar amount per unit of 

taxed good. For example, alcoholic beverages are taxed at a set rate per 

gallon or barrel, with the rate varying for different types of beverages and 

differing concentrations of alcohol. When set in this manner, the real dollar 

value of the tax falls with inflation.

The real dollar value of these taxes can be maintained over time if the tax is 

indexed for inflation or set as a percentage of the price of the taxed product 

or service. Tax policy issues would need to be considered, and 

administrative difficulties may be encountered, but they are not 

insurmountable. The Congress may wish to consider indexing excise tax 

rates for alcohol and tobacco. 

JCT made the following revenue estimates, for beverages and tobacco 

removed after December 31, 2004.

Five-Year Revenues

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

Related GAO Products Alcohol Excise Taxes: Simplifying Rates Can Enhance Economic and 

Administrative Efficiency. GAO/GGD-90-123. Washington, D.C.: 

September 27, 1990.

Tax Policy: Revenue Potential of Restoring Excise Taxes to Past Levels. 

GAO/GGD-89-52. Washington, D.C.: May 9, 1989.

Primary agency Internal Revenue Service

Spending type Direct

Theme Redefine beneficiaries

Dollars in billions

FY05 FY06 FY07 FY08 FY09

Revenue gain 0.5 0.8 1.1 1.5 1.9
Appendix III

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GAO Contact James R. White, (202) 512-9110
Appendix III

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Efficiency, and Effectiveness of Federal 

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Page 293 GAO-04-649 Opportunities for Oversight

Require Corporate Tax 

Document Matching

The Internal Revenue Service’s (IRS) document matching program for 

payments to individuals has proven to be a highly cost-effective way of 

bringing in billions of dollars in tax revenues to the Department of the 

Treasury while at the same time boosting voluntary compliance. However, 

unlike payments to individuals, the law does not require that information 

returns be submitted on most payments to corporations.

Generally using IRS’s assumptions, we estimated the benefits and costs for 

a corporate document matching program that would cover interest, 

dividends, rents, royalties, and capital gains. Assuming that a corporate 

document matching program began in 1993, we estimated that for years 

1995 through 1999, IRS’s annual costs would have been about $70 million 

and annual increased revenues about $1 billion. This estimate did not 

factor in compliance costs and changes in taxpayer behavior. Given 

increased corporate noncompliance, and declining audit coverage, the 

Congress may wish to require a corporate document matching program.

 JCT agrees that the option has the potential for increased revenue, but it 

cannot be estimated without additional specification.

Related GAO Product Tax Administration: Benefits of a Corporate Document Matching 

Program Exceed the Costs. GAO/GGD-91-118. Washington, D.C.: September 

27, 1991.

GAO Contact James R. White, (202) 512-9110

Primary agency Internal Revenue Service

Spending type Direct

Theme Improve efficiency
Appendix III

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Improve 

Administration of the 

Tax Deduction for Real 

Estate Taxes

Based on the Internal Revenue Service’s (IRS) last compliance 

measurement study, individuals overstated their real estate tax deductions 

by about $1.5 billion nationwide in 1988. We estimate that this resulted in 

about $400 million federal tax loss for 1992. However, this may understate 

lost revenues because our review also found that IRS auditors detected 

only about 29 percent of $127 million in overstated deductions in three 

locations we reviewed. Revenues could be lost not only for the federal 

government but also for the state governments that tied their itemized 

deductions to those used for federal tax purposes.

Two changes to the reporting of real estate cash rebates and real estate 

taxes could reduce noncompliance and increase federal tax collections. 

First, the Congress could require that states report to IRS, and to taxpayers 

on Form 1099s, cash rebates of real estate taxes. JCT agrees that the 

option has the potential for increased revenue, but it cannot be estimated 

without additional specification.

Second, the Congress could require that state and local governments 

conform real estate tax statements to specifications issued by IRS that 

would separate real estate taxes from nondeductible fees, which are often 

combined on these statements.

JCT made the following revenue estimates, effective for rebates issued 

after December 31, 2004, and amounts reported on tax bills after December 

31, 2005.

Primary agency Internal Revenue Service 

Spending type Direct

Theme Improve efficiency
Appendix III

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Five-Year Revenues

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

a

Gain of less than $50 million.

Related GAO Product Tax Administration: Overstated Real Estate Tax Deductions Need To Be 

Reduced. GAO/GGD-93-43. Washington, D.C.: January 19, 1993.

GAO Contact James R. White, (202) 512-9110

Dollars in billions

FY05 FY06 FY07 FY08 FY09

Revenue gain a 0.1 0.2 0.2 0.3
Appendix III

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Efficiency, and Effectiveness of Federal 

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Increase Filing of 

Returns by U.S. 

Citizens Living Abroad

U.S. citizens residing abroad are generally subject to the same filing 

requirements as citizens residing in the United States. Some evidence 

suggests that the failure to file tax returns may be relatively prevalent in 

some segments of the U.S. population abroad, and the revenue impact, 

while unknown, could be significant.

IRS’s ability to identify and collect taxes from nonfilers residing abroad is 

restricted by the limited reach of U.S. laws in foreign countries, particularly 

U.S. laws on tax withholding, information reporting, and enforced 

collection through liens, levies, and seizures. Another factor that could 

contribute to nonfiling abroad is the ambiguity in IRS’s filing instructions 

for its Form 1040 and related guidance. For example, it may not be clear 

that income qualifying for the foreign earned income or housing expense 

exclusions must be considered in determining whether one’s gross income 

exceeds the filing threshold.

In pursuing nonfilers abroad, IRS has not fully explored the usefulness of 

passport application data as a means of identifying potential nonfilers. 

While passport applications contain no income information, they could be 

used to collect applicants’ social security number, age, occupation, and 

country of residence.

IRS may want to take additional steps to enforce the current information 

requirement that all passport applicants provide their social security 

numbers as a means of identifying potential nonfilers abroad. IRS may also 

want to clarify its instructions for determining what income must be 

considered in determining whether gross income exceeds the filing 

threshold. Initial projects to increase the number of returns filed from 

overseas suggest that the potential increase in tax revenues would justify 

the costs to improve compliance.

 JCT agrees that the option has the potential for increased revenue, but it 

cannot be estimated without additional specification.

Primary agency Internal Revenue Service

Spending type Direct

Theme Improve efficiency
Appendix III

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Efficiency, and Effectiveness of Federal 

Programs

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Related GAO Products Tax Administration: Nonfiling Among U.S. Citizens Abroad. GAO/GGD98-106. Washington, D.C.: May 11, 1998.

IRS Activities to Increase Compliance on Overseas Taxpayers. 

GAO/GGD-93-93. Washington, D.C.: May 18, 1993.

GAO Contact James R. White, (202) 512-9110
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 298 GAO-04-649 Opportunities for Oversight

Increase the Use of 

Seizure Authority to 

Collect Delinquent 

Taxes

The Internal Revenue Service’s (IRS) use of its statutory authority to seize 

taxpayer assets has been instrumental in bringing into compliance (i.e., full 

pay status) many delinquent taxpayers who had been unresponsive to other 

tax collection efforts, including demands for payment through letters, 

phone calls, personal visits, and levies on bank accounts and wages. 

Since the enactment of the IRS Restructuring and Reform Act of 1998 

(Restructuring Act), IRS’s use of seizure authority has declined. In fiscal 

year 1997, IRS carried out 10,090 seizures compared to only 399 in fiscal 

year 2003. At this greatly reduced level of seizures, IRS is at risk of 

foregoing the collection of millions of dollars as indicated in our 1999 

report. We reported that, of the approximate 8,300 taxpayers whose assets 

were seized by IRS in fiscal year 1997, about 42 percent became fully tax 

compliant—resolving about $186 million in tax debts—as a result of the 

seizures. In total, the seizure of taxpayer property in fiscal year 1997 

resulted in resolving about $235 million, or about 22 percent of the $1.1 

billion of tax debts owed by the 8,300 taxpayers.

Our 2002 survey of IRS employees showed that nearly two-thirds of those 

who collect tax debts said that their likelihood of recommending a seizure 

of a taxpayer’s assets had decreased due to concerns about the 

Restructuring Act’s requirements. According to an IRS official in 2003, the 

level of seizures is expected to remain substantially below the level before 

the Restructuring Act given (1) IRS program changes that provide 

taxpayers with additional opportunities to resolve their tax delinquencies 

prior to seizure, (2) expanded definition of taxpayer property statutorily 

exempt from seizure, and (3) increased time available to taxpayers to 

exercise rights to challenge seizures. 

At the greatly reduced level of seizures that IRS has implemented since 

1997, it is at risk of foregoing the collection of millions of dollars. Although 

it may not be necessary to revert back to the 1997 levels, the Congress may 

Primary agency Internal Revenue Service

Spending type Direct

Theme Improve efficiency
Appendix III

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want to ask IRS whether it is making full appropriate use of its seizure 

authority.

JCT agrees that the option has the potential for increased revenue, but it 

cannot be estimated without additional specification.

Related GAO Products Tax Administration: IRS and TIGTA Should Evaluate Their Processing of 

Employee Misconduct under Section 1203. GAO-03-394. Washington, D.C.: 

February 14, 2003.

IRS Seizures: Needed for Compliance but Processes for Protecting 

Taxpayer Rights Have Some Weaknesses. GAO/GGD-00-4. Washington, 

D.C.: November 29, 1999.

GAO Contact James R. White, (202) 512-9110
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 300 GAO-04-649 Opportunities for Oversight

Increase Collection of 

Self-employment Taxes

Self-employed taxpayers can get Social Security benefits based on earnings 

for which they did not pay taxes because the Social Security Act requires 

the Social Security Administration to grant earnings credits, which are used 

to determine benefit eligibility and amounts, and pay benefits without 

regard to whether the Social Security taxes have been paid. We reported in 

1999 that, as of September 1997, more than 1.9 million self-employed 

taxpayers were delinquent in paying $6.9 billion in self-employment taxes. 

Also, more than 144,000 taxpayers with delinquent self-employment taxes 

of $487 million were receiving about $105 million annually in monthly 

Social Security benefits.

While IRS’s ability to collect self-employment taxes before taxpayers 

become delinquent is hampered because there is no withholding on selfemployment income, most self-employed taxpayers are required to make 

estimated tax payments. However, as of September 1997, about 90 percent 

of the delinquent self-employed taxpayers required to make estimated tax 

payments did not.

In the past, there have been proposals to deny social security credits to 

taxpayers that fail to pay their self-employment taxes and to require 

withholding on certain self-employment income. No actions were taken on 

these proposals. One way to collect self-employment taxes before 

taxpayers become delinquent that does not require a law change would be 

to encourage more self-employed individuals to make their required 

estimated tax payments. IRS could do this by establishing a program to 

remind previously noncompliant taxpayers (i.e., those who were assessed 

an estimated tax penalty the previous year) to make such payments.

JCT cannot estimate the revenue effect of this option without additional 

specification.

Related GAO Product Tax Administration: Billions in Self-Employment Taxes Are Owed. 

GAO/GGD-99-18. Washington, D.C.: February 19, 1999.

Primary agency Internal Revenue Service

Spending type Direct

Theme Improve efficiency
Appendix III

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GAO Contact James R. White, (202) 512-9110
Appendix III

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Programs

Page 302 GAO-04-649 Opportunities for Oversight

Increase the Use of 

Electronic Funds 

Transfer for 

Installment Tax 

Payments

The Internal Revenue Code authorizes the Internal Revenue Service (IRS) 

to allow taxpayers to pay their taxes in installments, with interest, if this 

arrangement would facilitate collection of the liability. As of April 2003, 

IRS had about 251,000 installment agreements outstanding, worth about 

$2.3 billion. At the end of fiscal year 2000, approximately 35 percent of 

such installment agreements were in default.

A number of states use electronic funds transfer (EFT) to make their 

installment agreement program more efficient and effective. In 1998, we 

reported on two states’ use of EFT. Minnesota, requires taxpayers to pay 

by EFT, with some exceptions. As of late 1997, approximately 90 percent of 

Minnesota’s installment agreements were EFT agreements, and the default 

rate had dropped from about 50 percent to between 3 percent and 5 percent 

in the 2 years the EFT requirement had been in effect. In California, within 

6 months of implementing its EFT procedures, its default rate for new 

installment agreements dropped from around 40 percent to 5 percent.

EFT payments also produce administrative savings through lower 

processing costs involved in recording and posting remittances, lower 

postage and handling costs associated with sending monthly payment 

reminders, and lower collection enforcement costs needed to pursue fewer 

taxpayers in default. IRS’s initial comparison of the cost of EFT payments 

with the cost of having taxpayers send installment payments to lockboxes 

in commercial banks showed that EFT payment costs were about 37 

percent less than the lockbox costs.

The reported benefits for IRS of using EFT for installment agreement 

payments include the potential to reduce the percentage of taxpayer 

defaults, decrease administrative costs, and achieve faster collections. At 

the end of fiscal year 2000, less than 1.5 percent of IRS’s outstanding 

installment agreements were EFT agreements. 

Primary agency Internal Revenue Service

Spending type Direct

Theme Improve efficiency
Appendix III

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JCT cannot estimate the revenue effect of this option without additional 

specification.

Related GAO Products Tax Administration: Increasing EFT Usage for Installment Agreements 

Could Benefit IRS. GAO/GGD-98-112. Washington, D.C.: June 10, 1998.

Tax Administration: Administrative Improvements Possible in IRS’ 

Installment Agreement Program. GAO/GGD-95-137. Washington, D.C.: May 

2, 1995.

GAO Contact James R. White, (202) 512-9110
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 304 GAO-04-649 Opportunities for Oversight

Reduce Gasoline 

Excise Tax Evasion

Although no current and reliable estimate of gasoline excise tax evasion 

exists, the most recent Federal Highway Administration estimate, from 

1992, was that evasion amounted to between 3 and 7 percent of gasoline 

excise tax revenue. From a tax administration perspective, moving the 

collection point for gasoline excise taxes from the terminal to the refinery 

level may reduce tax evasion because (1) gasoline would change hands 

fewer times before taxation, (2) refiners are presumed to be more 

financially sound and have better records than other parties in the 

distribution system, and (3) fewer taxpayers would be involved. However, 

industry representatives raise competitiveness and cost-efficiency 

questions associated with moving the collection point.

In a May 1992 report, we suggested that the Congress explore the level of 

gasoline excise tax evasion and, if it was found to be sufficiently high, move 

tax collection to the point at which gasoline leaves the refinery. 

JCT made the following revenue estimates, effective January 1, 2005.

Five-Year Revenues

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

a

Gain of less than $50 million.

Related GAO Product Tax Administration: Status of Efforts to Curb Motor Fuel Tax Evasion. 

GAO/GGD-92-67. Washington, D.C.: May 12, 1992.

Primary agency Internal Revenue Service

Spending type Direct

Theme Improve efficiency

Dollars in billions

FY05 FY06 FY07 FY08 FY09

Revenue gain 0.9 a a aa
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 305 GAO-04-649 Opportunities for Oversight

GAO Contact James R. White, (202) 512-9110
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 306 GAO-04-649 Opportunities for Oversight

Improve Independent 

Contractor Tax 

Compliance

Common law rules for classifying workers as employees or independent 

contractors are unclear and subject to conflicting interpretations. While 

recognizing this ambiguity, the Internal Revenue Service (IRS) enforces tax 

laws and rules through its Employment Tax Examinations program. For 

fiscal year 2002, 90 percent of the examinations found misclassified 

workers and associated unpaid taxes. Establishing clear rules is difficult. 

Nevertheless, taxpayers need--and the government is obligated to provide--

clear rules for classifying workers if businesses are to voluntarily comply. 

In addition, improved tax compliance could be gained by requiring 

businesses to (1) withhold taxes from payments to independent 

contractors and/or (2) file information returns with IRS on payments made 

to independent contractors constituted as corporations. Both approaches 

have proven to be effective in promoting individual tax compliance.

In the past, the Congress considered but rejected extending information 

reporting requirements for unincorporated independent contractors to 

incorporated ones. Thus, independent contractors organized as either sole 

proprietors or corporations could have been on equal footing, and IRS 

could have had a less intrusive means of ensuring their tax compliance.

While there have been various proposals on clarifying the definition of 

independent contractors and improving related information reporting, as 

well as various congressional hearings that have dealt with some of these 

bills, there remain opportunities for change. One option the Congress may 

consider is to require the IRS clarify the definition of independent 

contractors and extend information reporting requirements for 

unincorporated independent contractors to incorporated ones. We believe 

that revenues from this option could possibly increase by billions of 

dollars. 

JCT agrees that the option has the potential for increased revenue, but it 

cannot be estimated without additional specification.

Primary agency Internal Revenue Service 

Spending type Direct

Theme Improve efficiency
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 307 GAO-04-649 Opportunities for Oversight

Related GAO Products Tax Administration: Estimates of the Tax Gap for Service Providers. 

GAO/GGD-95-59. Washington, D.C.: December 28, 1994.

Tax Administration: Approaches for Improving Independent Contractor 

Compliance. GAO/GGD-92-108. Washington, D.C.: July 23, 1992.

GAO Contact James R. White, (202) 512-9110
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 308 GAO-04-649 Opportunities for Oversight

Expand the Use of 

IRS’s TIN-Matching 

Program

The Internal Revenue Service’s (IRS) and the Department of Treasury’s 

Financial Management Service (FMS) have initiated a continuous tax levy 

program designed to identify and levy federal payments to taxpayers that 

owe federal taxes. The potential effectiveness of this program will be 

reduced because payment records submitted to FMS by federal agencies 

often have an inaccurate Taxpayer Identification Number (TIN) and/or 

name.

Since 1997, IRS has had a TIN-matching program that federal agencies can 

use to verify the accuracy of TIN and name combinations furnished by 

federal payees that are necessary for issuing information returns. This 

program was intended to reduce the number of notices of incorrect TIN 

and name combinations issued for backup withholding by allowing 

agencies the opportunity to identify TIN and name discrepancies and to 

contact payees for corrected information before issuing an information 

return. Monthly, federal agencies may submit a batch of name and TIN 

combinations to IRS for verification. IRS matches each record submitted 

and informs the agency whether the TIN and name submitted match its 

records. However, IRS cannot explicitly tell an agency what the correct 

TIN, name, or both TIN and name should be if the records do not match. To 

do so would violate tax disclosure laws.

In an April 2000 report, we found that about 33 percent of vendor payment 

records submitted by federal agencies to FMS during one quarter in fiscal 

year 1999 had TINs and/or names that differed with the TINs and/or names 

in IRS’s accounts receivable records. As a result, vendor payment records 

totaling almost $20 billion were unsuitable for matching against IRS’s 

accounts receivable records and therefore would not be included in the 

joint FMS/IRS continuous tax levy program for the purpose of reducing 

federal tax delinquencies.

The Congress may wish to expand the use of IRS’s TIN-matching program 

for purposes other than information reporting to enable federal agencies to 

Primary agency Internal Revenue Service

Spending type Direct

Theme Improve efficiency
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 309 GAO-04-649 Opportunities for Oversight

specifically verify the accuracy of vendor TINs and names. This would help 

to reduce the number of federal payment records that are unsuitable for 

matching against IRS’s accounts receivable records and to increase the 

number of federal tax delinquencies that could be collected through the 

continuous tax levy program. We estimate that resolving inconsistencies 

between the names payees use to receive federal payments and the names 

payees use on their federal tax returns could generate as much as $74 

million annually. 

JCT estimates the following revenue for contracts entered into or after 

December 31, 2004.

Five-Year Revenues

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

a

Gain of less than $50 million.

Related GAO Product Tax Administration: IRS’ Levy of Federal Payments Could Generate 

Millions of Dollars. GAO/GGD-00-65, April 7, 2000.

GAO Contact James R. White, (202) 512-9110

Dollars in billions

FY05 FY06 FY07 FY08 FY09

Revenue gain a a a aa
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 310 GAO-04-649 Opportunities for Oversight

Improve 

Administration of the 

Federal Payment Levy 

Program

The Internal Revenue Service (IRS) and the Department of Treasury’s 

Financial Management Service (FMS) have initiated the Federal Payment 

Levy Program, which is designed to continuously levy federal payments 

made to taxpayers that owe federal taxes. The potential effectiveness of 

this program will be reduced because IRS has blocked certain delinquent 

taxpayers from being levied.

Since July 2000, IRS has been levying federal payments of delinquent 

taxpayers. Certain taxpayers are not levied because they meet certain 

exclusion criteria, such as taxpayers who are paying their taxes through 

installment agreements or those who have contacted IRS and 

demonstrated that they currently do not have the means to pay their taxes. 

However, there are many other delinquent taxpayers who do not meet IRS’s 

exclusion criteria but are not having their federal payments levied. In a 

March 2003 report, we found that about 112,000 delinquent taxpayers were 

collectively receiving about $6.8 billion in federal payments and owed 

about $1.6 billion in delinquent taxes that IRS had blocked from the levy 

program. While IRS began to unblock about 20,000 of these accounts in 

January 2003, it does not plan to unblock the remaining portion until 

sometime in 2005 because of expected impact on workload. The sooner 

IRS unblocks these accounts, the more likely it is to collect the delinquent 

taxes.

JCT agrees that the option has the potential for increased revenue, but it 

cannot be estimated without additional specification.

Related GAO Product Tax Administration: Federal Payment Levy Program Measures, 

Performance, and Equity Can Be Improved. GAO-03-356. Washington, 

D.C.: March 6, 2003.

GAO Contact Michael Brostek, (202) 512-9110

Primary agency Internal Revenue Service

Spending type Direct/Discretionary

Theme Increase efficiency
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 311 GAO-04-649 Opportunities for Oversight

Increase Penalties and 

Consistency of 

Disclosure for Abusive 

Tax Shelters

Abusive tax shelters tend to be very complicated transactions promoted to 

corporations and wealthy individuals to exploit tax loopholes by providing 

these taxpayers with large, unintended tax benefits designed to lower their 

overall tax bills. By their nature, abusive tax shelters are varied, complex, 

and difficult to detect and measure. 

Recently, Internal Revenue Service (IRS) has been giving abusive tax 

shelters substantially increased attention. IRS’s strategy for combating the 

use of abusive tax shelters includes assessing penalties and requiring 

taxpayers to disclose information about their use of abusive transactions. 

IRS has data that suggest the tax loss to be in the tens of billions of dollars. 

As of September 2003, an IRS database of tax avoidance transactions 

contained information estimating a tax loss of $33 billion, the majority of 

which concentrated from tax year 1993 to the present.

Measures such as increased penalties and consistency of disclosure could 

possibly reduce the use of abusive shelters and the resulting loss of tax 

revenues. In 2002, the Treasury Department developed an enforcement 

proposal to increase penalties and uniformity of disclosure for taxpayers 

and promoters of abusive tax shelters. Similar enforcement measures are 

contained in the President’s FY 2005 budget proposal, which has provisions 

for expanded penalties and more uniform disclosure rules for taxpayers 

and promoters involved in abusive tax shelters. 

Congress has considered various options for expanding abusive shelter 

penalties including the Treasury proposal. To reduce the use of abusive 

shelters and the loss of tax revenues, one option the Congress may want to 

consider is enacting legislation to expand penalties and make disclosure 

more uniform for taxpayers and promoters of abusive tax shelters. 

JCT agrees that the option has the potential for increased revenue, but it 

cannot be estimated without more specifics of penalties and disclosures to 

be required.

Primary agency Internal Revenue Service

Spending type Discretionary

Theme Reassess Objectives
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 312 GAO-04-649 Opportunities for Oversight

Related GAO Products Internal Revenue Service: Challenges Remain in Combating Abusive Tax 

Schemes. GAO-04-50. Washington, D.C.: November 19, 2003.

Internal Revenue Service: Challenges Remain in Combating Abusive Tax 

Shelters. GAO-04-104T. Washington, D.C.: October 21, 2003.

Internal Revenue Service: Efforts to Identify and Combat Abusive Tax 

Schemes Have Increased, but Challenges Remain. GAO-02-733. 

Washington, D.C.: May 22, 2002.

GAO Contact Michael Brostek, (202) 512-9110
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 313 GAO-04-649 Opportunities for Oversight

Authorize IRS to Use 

Private Collection 

Agencies to Collect 

Certain Delinquent 

Taxes

The Department of the Treasury has proposed that Congress authorize the 

Internal Revenue Service (IRS) to contract with private collection agencies 

(PCA) to help collect the growing inventory of tax debts. According to IRS, 

as of May 2003, the total amount of outstanding tax liabilities was $283.5 

billion, of which IRS believes $85.4 billion has a realistic possibility of being 

collected. Treasury and IRS have identified a portion—as much as 25 

percent of the $85.4 billion—as potentially being eligible for referral to 

PCAs. In addition, IRS is continuing to assess the inventory of outstanding 

tax liabilities to determine whether additional amounts may be appropriate 

for referral to PCAs.

In pursing the private collection of tax debts, IRS would have to address 

certain important issues, including selecting cases appropriate for PCAs 

and assuring the protection of taxpayer rights. IRS’s 1996-1997 pilot 

program using private collection agencies showed that various challenges 

must be overcome to assure the success of such a program. As of January 

2004, IRS has taken a number of steps to address critical success factors 

for this proposed program. For example, IRS has (1) developed program 

performance measures and goals, (2) been planning to implement a 

computer system to transmit data to PCAs, (3) been developing a method 

to select PCA cases based on collection potential, and (4) written draft 

contract provisions to govern the security of taxpayer data and PCAs’ 

interactions with taxpayers.

The proposal would allow IRS to pay PCAs from money collected. 

According to Treasury, using PCAs would yield $1.5 billion over 10 years. 

One option the Congress may wish to consider is allowing IRS to contract 

with private collection companies to collect delinquent taxes. 

JCT agrees that the option has the potential for increased revenue, but it 

cannot be estimated without additional specification.

Primary agency Internal Revenue Service

Spending type Discretionary

Theme Reassess objectives
Appendix III

Opportunities to Improve the Economy, 

Efficiency, and Effectiveness of Federal 

Programs

Page 314 GAO-04-649 Opportunities for Oversight

Related GAO Product Compliance and Collections: Challenges for IRS in Reversing Trends and 

Implementing New Initiatives. GAO-03-732T. Washington, D.C.: May 7, 

2003.

GAO Contact Michael Brostek, (202) 512-9110

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